''We are concerned that the ownership of state assets might be complicated by the transaction because it involves different legal systems of different places,'' said Mr Guan, who is in charge of publicly held assets in state-owned enterprises.

Mr Guan admitted that indirect or back-door listings were a shortcut for Chinese state enterprises to raise funds overseas, without having to go through the formal procedure of flotation on the stock markets.

However, aside from fund raising, back-door listings seem unable to help rejuvenate the country's ailing public sector, with a significant number of state-owned enterprises losing money year after year.

''Foreign investors in these companies normally will not play an active role in the day-to-day management of the enterprises,'' Mr Guan said.

''This is in contrast with joint ventures in which foreign partners bring with them advanced management skills apart from funds.'' Although Mr Guan admitted that some other mainland enterprises were also considering buying ''shells'' in Hongkong or Bermuda, he believed that the number would be limited.

''There are only a few experiments by individual enterprises and I don't expect this to develop into a massive buying spree in the near future,'' he said.

On specific departmental policy on new acquisitions, Mr Guan said: ''They should proceed very cautiously because there are a lot of things which need to be further studied.'' He added that after a study on the issue was completed, a clearer position could be adopted.

Since Shougang Corp acquired Tung Wing in October last year, a total of 10 Hongkong listed companies have been acquired by mainland enterprises.

Recent shell acquisitions include those of Conic Investment by China Aerospace Industrial Corp; Seabase Holdings by China National Cereals, Oils and Foodstuffs Import and Export Corp; and Paragon by China National Petroleum Corp.

However, a number of analysts agree with Mr Guan that the pioneering move by Shougang will not prompt a massive outflow of mainland funds in view of impending controls by both Hongkong and mainland regulatory authorities.

They also pointed to the fact that Shougang's prestige in China could not be matched by other Chinese enterprises, especially after the visit of senior leader Deng Xiaoping to the plant in mid-1992.

Following the much publicised visit, the iron and steel giant was given expanded rights in investment, foreign trade and finance, giving the corporation the highest autonomy of any Chinese industrial enterprise.

Dr Thomas Chan Man-hung, director of the China Business Centre at the Hongkong Polytechnic, warned that because of the expected downturn of the Chinese economy in the second half of this year, mainland enterprises seeking back-door listings might not be as profitable as in the past few years.

''It is not an opportune time to buy now,'' he said.

The negative side of back-door listings was that the rush for indirect overseas listings by mainland enterprises might undermine the development of China's B share markets, Dr Chan said.

''It is also not in the best interest of the state for large amount of funds to flow out of the country,'' he said.

More importantly, the price of shell acquisitions might be too high, while the price of subsequent purchases of the parent company's mainland assets might be too low, posing a loss for the state.

''These enterprises tend to be the most profitable in the country. The selling of their assets, in a sense, is also a loss to the state,'' he said.

However, Dr Chan said the state could still exercise ultimate control of the enterprises by careful restructuring.

Professor Xiao Zhuoji, an economist at the prestigious Beijing University urged Chinese authorities to improve the B share markets to provide more channels for enterprises to raise funds.

''Although there are about 20 enterprises which have their B shares traded on the Shanghai and Shenzhen markets, the performance of these markets has been far from satisfactory because of the difference in accountancy and legal systems,'' he said.

Noting reports that direct listing of nine state approved enterprises in Hongkong might be delayed, Professor Xiao said the need to improve B share markets became more urgent.

''Without the provision of other alternatives, back-door listing will continue to be the most popular way to achieve the purpose of raising funds, and to catch the attention in international financial markets,'' he said.

Because of a lack of experienced and capable managers, mainland enterprises gaining indirect listings in Hongkong might not meet the standard of Hongkong listed companies and posed a potential danger for investors, he said.

''The state should step up control of the rush for indirect overseas listings in order to prevent those unqualified enterprises from gaining back-door listings,'' he said.