China shares closed at an eight-month low yesterday, hit by a fresh selling spree in bank stocks as investors shrugged off new rules tightening controls on initial public offerings, brokers said.

Regulators, in an apparent effort to ease concern over excess share issues which have helped cause a two-month market slump, announced yesterday they would set stricter requirements for companies applying for IPOs.

Among new regulations, proceeds raised from a corporate IPO must not exceed a company's unaudited net assets at the end of the previous year by more than two times, the China Securities Regulatory Commission (CSRC) said.

Firms planning IPOs must also be independent from their corporate parents from 2004, with no more than 30 percent of turnover connected with major shareholders, the CSRC said in new rules published in the press.

The firms' core businesses and shareholders that have controlling stakes must not have changed over the previous three years, the CSRC said.

A slew of IPOs, secondary stock offers and convertible bond issues have raised at least US$1.6 billion over the past month alone, further weighing on a market already struggling with tighter lending and relatively high valuations.

But the benchmark Shanghai composite index, grouping hard-currency B shares for foreigners and yuan-denominated A shares, still finished down 0.71 percent at 1,381.443 points, the lowest closing level since January 8 when it ended at 1,372.067.

The Shenzhen sub-index fell 0.64 percent yesterday to 3,075.78 points.

China Merchants Bank Co Ltd was one of yesterday's most active counters, falling 3.26 percent to 9.20 yuan (US$1.11), partly hit by its plan to issue convertible bonds.

The lender has slipped 12.5 percent since August 26 when it announced it would issue 10 billion yuan (US$1.21 billion) in five-year bonds convertible to A shares in China's largest ever issue of the investment instrument.

"The fall in blue-chip companies like bank stocks exerted further downward pressure on the market today," said analyst Luo Xiaoming at Pingan Securities. "We expect further weakness in the near term, possibly until the National Day holiday."

Analysts said they believed the Shanghai composite index could drop another 5 percent to test a year low of 1,311.684 points set on January 6 before the stock market is closed from October 1 to 7 for the National Day holiday.

The index has fallen 10.26 percent since mid-July, battered by a slew of negative factors such as too many stock offers and a government tightening in bank lending, which triggered worries over a shortage of money in the markets, brokers said.

The other four listed banks fell too yesterday as investors believed the recent tightening of bank lending would have a negative impact on their business, brokers said.

Shanghai Pudong Development Bank Co Ltd closed down 1.65 percent at 9.56 yuan (US$1.15) and Huaxia Bank Co Ltd slipped 0.69 percent to 7.21 yuan (US$0.87).

China's yuan ended flat versus the US dollar at 8.2773 yesterday, at the stronger end of its managed trading range.

The yuan moves in a band of 8.2760 to 8.2800 enforced by the central bank.

Turnover rose to US$500 million from a thin US$350 million on Friday. The yuan weakened to 7.3553 against 100 Japanese yen from 7.1748 and softened versus the euro to 9.4700 from 9.3220.

(China Daily September 23, 2003)