BEIJING'S Securities Regulatory Commission chairman Liu Hongru has been down to the south of China during the past week checking on the country's capitalist experiments - the stock exchanges. Despite the recent pickup in B-share activity, he probably still does not quite like what he sees. B-shares listed in China are reserved for foreigners, but are usually passed over in favour of H-shares listed in Hong Kong. According to Credit Lyonnais Securities, based on P/E (price/earnings) ratios, H-shares trade at a 65 per cent premium to Shenzhen B-shares, a 28 per cent premium to Shanghai B-shares and a 24 per cent premium to the Hong Kong stock market. That means foreigners like to invest in China, but have much less trust in the mainland's regulatory systems than they do in Hong Kong's. Recognising the importance of American interest, three Shanghai B-share companies have obtained China's approval to have American Depositary Receipts issued over their stock: Tyre and Rubber, Erfangi, and Chlor Alkali. This is all very well, but what we need is for the B-share companies, all 30 of them, to come up to the H-share standards of their compatriots, that have chosen to list their foreign equity in Hong Kong. No more Shanghai Vacuums please - overstaffed, decayed management, failed rights issues and antique products. We all know A-shares turnover in China dwarfs that of B-shares issued by the same company. If the authorities are unwilling or unable to permit locals to buy B-shares, as they do in other countries, then they must bring in more foreigners to the B-share markets. Improved management, better choice of listing candidates, more attractive pricing, growing core businesses, proper regulation and disclosure are essential. If local Chinese are not to trade in B-shares until the yuan becomes freely convertible - a few years yet probably - then it is better to move the B-share markets to Hong Kong, with the relevant authority of the Securities and Futures Commission and stock exchange. There is no shame in Shanghai Tyre and Rubber, for example, having A-shares listed in Shanghai and H-shares listed in Hong Kong by way of introduction. Keep Shanghai and Shenzhen for A-shares and venture capital-type B-shares: let the cream float up to Hong Kong, and the trading and new issues can then begin in earnest. In the meantime, let foreign brokers have full membership of the stock exchanges in China so they can save on commission and afford more in-depth coverage and promotion of B-shares. Duncan Mount is a director of The China Fund and managing director of CEF Investment Management Limited, which may have an interest in and/or hold positions in the securities mentioned.