THE exchange has grown considerably since its inception in 1990 with market capitalisation of about 300 billion yuan (about HK$276 billion). Foreign firms have yet to benefit much from these developments. With the A-share market closed to outside firms, the 64 foreign brokerages now registered with the exchange rely for income on the tiny B-share market, capitalised at a mere 14 billion yuan. Jardine Fleming and Credit Lyonnais Securities Asia are thought to head the list of secondary traders. 'But secondary market activity is down about 45 per cent on last year,' said group chief representative in China for Barings, Richard Graham. 'And I'm sure no one would pretend to make money on volumes of US$2 million a day.' Primary market activity so far this year has been even worse. In 1993, there were 13 new B-share listings with a total value at issue of US$475 million. In 1994, a further 12 came out with a value of US$424 million. These are not huge sums. But since overall fees for B-share listings are between five and six per cent, even with higher exchange fees than Hong Kong it was reasonable business. This year, however, there has been almost no primary activity. For the firms with larger operations, such as Jardine Fleming, this must have been a tough year. Even for those with small teams, given the high cost of office space, the lack of business must pose problems. Next year should see an improvement but it may not be until 1997 that the primary market becomes truly buoyant. The reason - politics. 'The Shanghai and Shenzhen exchanges are still regarded by the central authorities as experimental,' a Chinese observer in Shanghai said. Just as the industrial development policies now common across China were once confined to five Special Economic Zones, so the financial markets are being developed through Shenzhen and especially Shanghai. This year has seen a process of recentralisation of power and a standardisation of regulations and procedures following relatively free developments during 1993 and 1994. The Chinese Government has keenly focused on two problems - reducing inflation and raising money. Developing the domestic bond markets would help achieve both these goals - by soaking up excessive liquidity and directing the capital to central coffers. The bond futures scandal that erupted in Shanghai in February this year ensured a crackdown on Shanghai. The exchanges, which once had authority to approve listings themselves and to regulate much of their activity, have therefore had their wings clipped. The new policy, articulated with the coming Ninth (1996-2000) Five-Year Plan in view, is for a 'healthy and orderly development' of the markets, that would be directed towards 'national needs' - an important one being foreign capital.