THE US$21 million (about HK$164 million) private placement of Shanghai Forever Bicycle company B shares closes on Thursday. Profits for this year are forecast at 70 million yuan (about HK$91 million), about 68.5 per cent of the level of Phoenix. Forever employs 7,900 workers, while Phoenix employs 11,130. Forever's factory is on a site less than half the size that of Phoenix. So, when we said last week that the authorities felt Phoenix was superior to Forever, perhaps, the more accurate translation would have been ''larger''. As with Phoenix, Forever's B shares are being privately placed, rather than publicly offered, with N. M. Rothschild and Sons and Smith New Court as the international coordinators. The price-earnings ratio for 1993 varies between seven and 11.2, depending on calculation method used. There is no forecast for 1994, but we expect Forever's issue to go well. Phoenix produces nearly five million bicycles a year, while Forever manufactures more than 3.19 million. About 43 per cent of production is devoted to making lightweight single-speed bicycles. Traditional bicycles make up 22 per cent of production. Racing bicycles, mountain bicycles and multi-speed bicycles make up the balance. New entrants into the production line this year are motor-assisted bicycles, like those seen all over France. Presumably, this type of bicycle, or moped, of which only about 3,000 were produced in the first half, will become more popular as income levelsrise in China. With so few B shares coming to the market these days, it is, perhaps, a pity that two bicycle issues should be placed so close to each other. Company spokesmen point to the relatively small size of the issues and say that the coincidence in the timing should not have a negative effect on investors. Activity levels in China's B-share markets are low, with many Shenzhen shares still not trading on a daily basis. The credit restrictions in China appear to have reduced interest in mainland stock markets, leaving B shares looking rather cheap. Baring Securities estimates Shenzhen B shares should rise by 50 per cent simply to reach fair value. There is no sign of such a re-rating being imminent. It may be somewhat easier for institutions to get exposure to China in their emerging market funds through private placements such as Shanghai Forever Bicycle. H shares have proven to be much more popular than B shares - thanks to the regulatory standards prevailing in Hong Kong and the much wider investor market. There will come a time when the regulatory gap between Hong Kong and China alone cannot keep B shares down at such wide discounts to H shares. Duncan Mount is a director of The China Fund and managing director of CEF Investment Management Limited which may have an interest in or hold positions in securities mentioned. The economies are after all inter-dependent, and it is illogical for Hong Kong to be re-rated too far upwards just because it is an entry point to the mainland, while China's securities are ignored. The big China country funds are probably keen to take any new B-share issue that comes along now.