China's stock market will double to US$1 trillion in market capitalisation in the next two to three years, bringing it into the ranks of the world's largest markets. Fred Wu, managing director of Goldman Sachs Group, said the 10-year-old mainland markets had been growing at a fast pace, from capitalisation of US$50 billion in 1995 to more than US$500 billion this year. This compared with Taiwan's US$150 billion in 1995 and more than US$300 billion this year. In Hong Kong, market capitalisation amounted to US$300 billion in 1995 and more than US$600 billion this year. Speaking at a seminar on the outlook of China's financial market yesterday, Mr Wu said Beijing's plans to merge the Shanghai and Shenzhen stock exchanges could create a unified stock market to replace Hong Kong as Asia's second-largest stock market after Tokyo. Mr Wu said that the Chinese leadership recognised the country's economic future should depend on an efficient capital market. Therefore it encouraged listing of large mainland companies in the A-share market, which trades in yuan and is reserved for domestic investors. Beijing is also formulating regulations to provide foreigners' access to yuan-denominated securities, alongside better enforcement of the Securities Law as well as other relevant regulations. The stock market would be boosted in view of a shift in the distribution of Chinese households' liquid assets. In China, only 11 per cent of household liquid assets is channelled to the stock market, compared with 23 per cent in Taiwan and 36 per cent in the United States. Mr Wu predicted that Chinese households would enlarge their investments in the stock markets and the ratio was predicted to increase to about 20 per cent of their liquid assets. China also sees growth potential in its debt market, he added. Despite the rapid development, Mr Wu said China would not replace Hong Kong's position as a fund-raising venue. Hong Kong would be the international stock market, with Shanghai the domestic stock market. Shanghai was unlikely to replace Hong Kong in the next 20 years in view of the mainland city's less-developed law systems and other infrastructure facilities. Chinese companies would still use the Hong Kong market to raise funds and H shares would continue to exist in Hong Kong in the next few years. At the seminar, the head of Hong Kong Exchanges and Clearing's China & International Development, Richard Peng Ru-chuan, also said that Hong Kong would be the best offshore stock market for Chinese companies to seek a listing and raise capital. Mr Peng cited China Mobile as an example, saying that the telecommunications company had raised HK$130.2 billion from Hong Kong since listing in 1997. Companies listed in Hong Kong and the US, such as China Petroleum & Chemical, would see better performance in Hong Kong trading, Mr Peng said.
