The indices of the Shanghai and Shenzhen stock markets have lost 20 per cent since the beginning of the year, with no sign of ceasing the downward trend. Cheng dampened speculation that the sale of State-held shares was the major contributor to the sharp drop in the two markets, saying it was triggered by the composition of the three forces.

Cheng, vice-chairman of the Standing Committee of the National People's Congress, was one of the major drafters of the Securities Law that came into force in 1999. He also took the lead in his committee's trip on checking the implementation of the Securities Law in Shanghai, Shenzhen, Wuhan and Chengdu in May and June.

At present, only 30 per cent of China's total stock market value of nearly 5 trillion yuan (US$604.5 billion) is "circulating shares," while more than 60 per cent of listed company shares are either State shares or corporate shares, which are not traded on the market.

"In the long term, it is not practical for a stock market to run well if its shares cannot be totally circulating," Cheng said.

The dominant position of non-circulating State shares in many listed companies has seriously hampered the reform of the corporate governing structure and the establishment of a modern enterprise system. At the same time, the government needs to sell State shares to raise money for its social security fund, according to a Xinhua report.

Last July, a pilot programme for the sale (set at high prices) met with a cold reaction from the market and was subsequently suspended.

Cheng said the brash move, with incomplete consideration of policy measures, had agitated heated opposition to the price setting and contributed to the drop in the markets.

In November the government announced it would solicit opinions from the public to seek a widely accepted plan.

Commenting on the health of China's stock market, Cheng said he had confidence in the market, though his committee spotted irregularities, such as market manipulation, inside trading, fraud in stock issuance, mendacious capital restructuring, and disclosure and dissemination of false information during their check-up on the performance of the law.

(China Daily January 24, 2002)