FOREIGN investor confidence in China's stock market has been shattered by low turnover and price volatility of B shares, says South China Brokerage research director Law Cheung-kwok. Regular changes to regulatory and taxation requirements plus foreign investment restrictions had led to uncertainty, in many instances threatening the profitability of listed companies, he said. Mr Law said the loss of confidence would continue and warned that the uncertainty could delay new listings planned for this year. ''These policy changes, though with good intention, would not be easily understood by foreign investors,'' Mr Law said in a report on the B-share market. Trading of foreign-held B shares has ground to a virtual halt recently because of investor caution following the slide in the yuan this month. The introduction of trading in B shares last February was enthusiastically received, but the slide of the yuan against the US dollar has eroded investors' positions over the past six months. The Shanghai and Shenzhen exchanges have adopted quoting their B shares in US dollars, but investors still face exchange risks on dividend earnings. Share prices and turnover have been weak over the past six months, particularly in Shenzhen. Recent improvement in activity in Shanghai has been due largely to a move allowing foreign securities companies to trade direct on the exchange. Mainland authorities are taking the problem seriously, realising a healthy stock market is important to financial and economic reform. Shenzhen will hold a three-day international seminar on B-share trading later this month in a bid to revive confidence. The regulatory and supervisory framework should improve once final drafts of securities and company laws are completed either late this year or early next. Apart from allowing more companies to seek listings, more international and domestic investors will be encouraged to enter the market. There will also be better company transparency by the adoption of international accounting standards. A Securities Commission and Securities Supervisory Commission were formally established on April 1 to improve supervision of the Shenzhen and Shanghai markets. While these changes are expected to be welcomed, Mr Law warned: ''The changing of the regulatory framework may introduce additional uncertainty to the market and thus delay listings during the year. ''Although the Chinese Government is now preparing the Company Law, it will take a long time for the legal tradition to be established. ''The current provision of information from the listed companies is low by international standards. Top management of listed companies are still learning to behave professionally.'' Mr Law said according to existing Chinese accounting practices, profits of many firms could be over-stated by about 30 per cent. However, international accounting firms based in Hongkong have set-up mainland joint ventures, which are expected to improve accounting standards significantly in due course.