The suspension "will probably spur a general upward trend that will last the rest of the year," said Huang Jinlao, a researcher at the Institute of International Finance under the Bank of China. "But we can hardly expect the market to soar sharply for long periods."

Both Shanghai and Shenzhen's indices shot up nearly 10 percent yesterday as wary investors, relishing the news that a market-depressing sales program was suspended, leapt back into markets that had been down about 30 percent since July.

In June, the market watchdog China Securities Regulatory Commission (CSRC) announced a plan requiring domestic firms to sell State-owned shares worth the equivalent of 10 percent of proceeds from initial public offerings or additional share issues. But that plan was suspended yesterday, pending further study.

The State owns 70 percent of all company shares, and investors had worried that the government sell-off, which could amount to billions of dollars, would swamp the decade-old markets.

The plan's halt boosted the confidence of investors frustrated by a string of scandals involving listed firms as well as measures to stamp out illegal funds, Huang said.

The strengthening of market confidence will bring back some institutional funds, he said. That, coupled with the fact that the fundamentals of the economy are still sound, will pave the way for a sustained rise throughout the rest of the year.

Huang offered assurances that planned issues of additional shares - which had already been on the CSRC's list and will probably be accelerated following the suspension - will not hurt investor sentiment because the news had already been absorbed by the market.

The halting of the State-share sale program will again leave the market guessing about when and in what form the program will come out.

But the new version "will not be worse than the suspended version," Huang said.

Intended to feed underfunded pension coffers, the suspended version of the plan was criticized by many as overpriced, unfair to investors and vulnerable to fraud.

"This shows the Finance Ministry's version has failed," said an analyst, speaking on the condition of anonymity. He said the new version will probably come with a price that is lower than the issue price in the suspended version but higher than the 120-130 percent of net asset per share approach favored by CSRC.

(China Daily 10/24/2001)