China's shares jumped by 2.35 percent to close at 1,248.20 points Wednesday after the nation's securities regulator clearly indicated it will act to strike a balance between tradable and non-tradable shares.

The benchmark Shanghai composite index opened 9.46 points higher than at the close on Tuesday. Trade volume at the Shanghai and Shenzhen bourses was about 18.9 billion yuan (US$2.27 billion), 3.9 billion yuan higher than on Tuesday.

"The surge is a direct result of positive sentiment due to the regulator's latest signals," said Wang Kai, manager of the research department of CITIC Securities.

On Tuesday, a spokesman for the China Securities Regulatory Commission (CSRC) said the time is ripe to begin experimenting with the circulation of non-tradable shares at some pilot listed firms.

"The news cheered me up and I am confident the stock market will drag itself out of the long-term doldrums soon," said Liu Zhi, a Beijing trader who has lost almost half of his investment capital in the past few years.

Experts say the move will provide a cure to the fundamental ailment of the domestic stock market.

About two thirds of shares are non-tradable, as they are in the hands of state-controlled institutions. The remainder are held by private investors that must shoulder the majority of risk in market fluctuations.

Although most investors welcomed the regulator's readiness to act, there are still some concerns.

"Only the CSRC has shown its attitude, and this is not the consensus among the relevant parties," said Zhong Wei, director of the International Finance Research Center at Beijing Normal University.

Many State departments and institutions are the beneficiaries of the present share structure, so must decide whether they want the problem solved or not, Zhong said.

The CSRC said it would continue to follow the principle of protecting the lawful interests of private investors.

"This should be the most important principle, but the regulator did not go into specifics and explain how," said Zhang Weixing, a stock expert in Beijing.

Meanwhile, deciding which firms should be used as pilot models for the market is also a matter for debate.

The regulator should choose representative blue chip companies to lead the way in market reform, according to Zhang.

Even if the irrational market structure is adjusted, the regulator must also bring stricter supervision to bear on the market.

The policy announcement is a temporary stimulus to the market, while long-term gains depend on the performance of listed firms, said Wang Kai at CITIC Securities.

However, the interests of private investors are often neglected through firms releasing misleading information, embezzlement of funds and providing guarantee services to other companies, according to Xue Hua, a stock investor in Beijing.

According to the CRSC spokesman, the commission will ask listed firms to supply transparent information disclosures and will severely punish wrongdoers.

An independent third party agency will be introduced to take care of investors' guarantee funds to avoid embezzlement.

More capital such as from insurance funds will be encouraged to enter the stock market to improve investment structure.

According to the executive meeting of the State Council held by Premier Wen Jiabao Wednesday, the present Securities Law should be amended to better protect the lawful interests of low-level investors.

(China Daily April 14, 2005)