China will allow domestically listed companies to issue new shares, ending a year-long ban on new-share sales and providing much-needed capital-raising mechanisms for Chinese companies. Companies that want to offer new shares must meet revenue and profitability requirements set out by the China Securities Regulatory Commission (CSRC). The Shenzhen and Shanghai stock exchanges reacted positively to the government’s announcement, closing at their highest levels in nearly two years. Strong growth in these exchanges and the government’s market-oriented reforms may encourage some of China’s overseas listed companies to also sell shares domestically.
Chinese citizens will soon have more opportunities to invest abroad, too. According to China’s central bank and the State Administration of Foreign Exchange (SAFE), qualified mainland investors, including banks, fund managers and insurance companies, will soon be allowed to make overseas investments and offer financial investment products to Chinese companies and individuals. SAFE also loosened restrictions on exchanging Chinese yuan into foreign currencies. The new policies will open new investment opportunities for Chinese people as well as allow the government to utilize the country’s swelling foreign exchange reserves.
China unexpectedly raised its interest rate on April 28 for the first time in 18 months. The move affected markets around the world as investors feared the increase might dampen China’s economic growth and decrease the country’s appetite for raw materials and energy. The central bank increased the one-year interest rate from 5.58% to 5.85%, probably due to concerns that China’s economy is again overheating. Loan growth was more rapid than expected in early 2006, and the central bank issued a separate statement calling for banks to tighten credit control.