China suspends share-sale rule

Investors returned to the market after the suspension

Chinese stock markets have soared, after the regulator suspended an unpopular rule that flooded the market with cheap shares.

The government announced regulations in June that required companies hand over 10% of the proceeds from any initial public offerings (IPOs) or new share issues to the state social security budget.

The net effect of the rule was to increase the flow of new shares to the market, watering down values and knocking some 30% off the main market indexes.

News that it had been suspended sent the Shanghai B share index up 8% and Shenzhen up 8.5%.

"As regulators need to study the implemention rules further, the China Securities Regulatory Commission (CSRC) has decided, after reporting to the State Council, to stop enforcement of the regulations," the Shanghai Securities News quoted a CSRC announcement as saying.

The government plans to resume the rule at a later date, calling it a "long-term" undertaking, the newspaper said.

"The CSRC will push forward the selldown after widely soliciting opinions from all parties," the newspaper said without giving a timescale.

Snap decision

The policy was aimed at reducing the government's stake in companies listed on China's stock markets while bolstering the small social security budget.

The government owns almost 70% of shares in listed companies.

The markets were caught off-guard by the move, indicating it was a snap decision.

Financial institutions generally are given prior notice of major government decisions on the market several days before they are formally announced.

Chinese president Jiang Zemin is believed to have personally approved the suspension after returning from the weekend Asia Pacific Economic Cooperation summit in Shanghai.