In yet another sign that Beijing is trying to restore investor confidence, a senior securities regulator has said a proposed second board on the Shenzhen Stock Exchange would not drain liquidity from the main board.
Yao Gang, a vice-chairman of the China Securities Regulatory Commission, said in an interview on the central government's website yesterday that the Nasdaq-style board would help ensure the healthy development of the capital markets.
'Prospective companies that have huge growth potential will enrich the market with additional good investment choices,' Mr Yao said. 'The companies will help enhance the confidence of investors, who will play an increasingly active role in the market.'
The CSRC unveiled detailed rules for the second-board market on Friday. Sources said the regulator would begin reviewing share-sale applications soon.
The benchmark Shanghai Composite Index has fallen 40.4 per cent below its peak set in mid-October as investors cashed out amid an influx of fresh equity and expected slower profit growth.
Government incentives, such as new fund approvals, failed to snap the losing streak and the index hit a nine-month low on Monday.
'It remains to be seen how investors will react to [Mr Yao's comments],' said Gu Weiyong, the chief investment officer at Ucon Investment Management. 'In theory, the second board will soak up funds.'
It was reported that nearly 200 companies intended to apply for initial public offerings on the second board.
The CSRC lowered the listing thresholds for growth companies, allowing unprofitable firms to sell shares on the second board if their annual revenue exceeded 30 million yuan (HK$33.14 million).
Mr Yao cautioned investors about the risk of buying shares in these small firms. 'They are immature in terms of business model and market exploration,' he said. 'Their operations may turn out to be unstable.'