Leading Chinese researchers yesterday renewed calls for stronger support from the capital market to the country's fund-thirsty small and medium-sized enterprises (SMEs).

At a high-profile seminar co-sponsored by the Chinese People's Political Consultative Conference's economic committee and the Capital Market Research Institute (CMRI), they said the time was ripe to resume new share offers on the Shenzhen stock exchange, launch a long-delayed second board market and legalize some underground funding channels that supported SMEs.

The Shenzhen bourse stopped floating new shares two years ago as it prepared to launch a second board, a market featuring lower listing requirements to help more high-tech SMEs raise funds.

The plan was postponed, largely over risk concerns, while the queue of listing applicants kept growing at the nation's other bourse in Shanghai.

Sources said the number of approved stock offerings was more than 200, but the pace of new offers is unlikely to pick up soon given the already sluggish sentiment.

"That is absolutely a waste," said Liu Hongru, CMRI chairman and a former chairman of the market watchdog the China Securities Regulatory Commission.

"I feel it's time to solve (the problem)," he said. "And the conditions are all in place."

Liu suggested allowing the Shanghai bourse's applicants with listing plans smaller than 50 million yuan (US$6 million) to list in Shenzhen instead.

He urged an early launch of the second board to develop a "multi-tier" capital market, arguing that "no development is the biggest risk."

Although Chinese SMEs are largely frustrated with the risk-averse banks and the stock market, they have grown rapidly over the past years. The reason, said Li Yang, director of the Institute of Finance under the Chinese Academy of Social Sciences, was a massive underground pool of private funds.

Such illicit funding channels are "very convenient," highly efficient, less prone to default due to the strong credit constraints within small communities, and have developed their own intermediaries, according to Xie Ping, director of the research bureau of the central People's Bank of China.

Li Yang, also a member of the central bank's monetary policy committee, said such funding channels should be legalized to enlarge their support to SMEs.

He also said over-the-counter markets, another growth area, should be given more government support. Such markets, like a high-tech product trading center in Shanghai that was once the target of a government crackdown but survived anyway, are cropping up in more cities across the country.

"That means there is demand (for such markets from the economy)," Li said.

Some participants yesterday speculated the seminar, which saw only an assistant general manager from the Shanghai bourse but the general manager of the Shenzhen exchange, was a sign that the government was already considering restarting new listings on the Shenzhen stock exchange.

(China Daily August 19, 2003)