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Big moneymaker in Shanghai

Jocelyn Ford Jul 5, 2006

KAI RYSSDAL: Big money over in Shanghai today. The state-run Bank of China has become China’s biggest public stock offering. Ever. It was the first big company to list on China’s domestic stock exchange since Beijing lifted a year-old ban on new stock offerings last month. The bank raised $2.5 billion. Much of it was from individual Chinese investors, and that’s just what China wanted to happen.

Marketplace’s Jocelyn Ford reports.

JOCELYN FORD: Chinese investors are sitting on $4 trillion worth of savings. And they are starving for quality shares to buy. So, today when the Bank of China offered them a chance, they pushed its share price up 23 percent. It was a rare opportunity.

China’s corporate best and brightest go to New York or Hong Kong to list their shares. They can raise more cash overseas because there is more money sloshing around in these older and better-regulated markets.The Shanghai stock exchange is seen as more of a seedy casino.

Andy Rothman, an analyst at CLSA, says the Bank of China’s homecoming suggests Beijing wants to change that.

ANDY ROTHMAN: It’s a good sign that the Chinese government and, more importantly, the communist party is seriously committed to creating a real stock market in China, something they don’t have right now.

FORD: What’s lacking?

ROTHMAN: A lot: good quality companies, good supervision and regulation to prevent fraud and insider trading, and better research.

China is also enticing investors by offering easy borrowing. From next month, investors will be able to borrow money from brokerages to invest in shares. This is a norm in many other countries, but it’s new to China. And it worries analysts like Fraser Howie, author of a book on China’s stock markets.

FRASER HOWIE: In China, so many times these things have been abused. And the potential for disaster is large.

He’s worried if leveraged investors lose a lot of money, they could get cold feet again and yank their cash out of the market.

In Beijing, I’m Jocelyn Ford for Marketplace.

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