To stop speculation, the price at which securities change hands is usually lower than the initial purchasing price. For instance, the Shenyang Real Estate Company issued two-year debentures in 1985. With a face value of 50 yuan each, their purchasing price was 45 yuan and selling price, 46 yuan.

The Shenyang Stock Market has been busy. Since its establishment, total transactions at the marketexceeded 18 million yuan, accounting for 4.55 percent of the 400 million yuan worth of securities issued in the city.

The Chinese government stipulated that the state treasury bonds could not be bought and sold. But in Wuhan they have been put on the market. In the opinion of Qian Kuangshi, a responsible member of the Wuhan Financial Market, permitting transactions in treasury bonds would vitalize the long-term finance market.

In fact, street pedlars in Wuhan and other cities speculated in the exchange of plastic goods and chinaware for treasury bonds to their own advantage. As a result, the treasury bonds suffered a fall in value ranging from 25 to 50 percent. Now, the government has been in principle agreed to lift the ban on market circulation of state treasury bond, as a result of appeals from departments in charge of securities market in Shenyang, Wuhan, Shanghai and elsewhere.

No Boom in Sight

Even the most optimistic are cautious of predicting a boom in the securities market.

Liu Hongru, vice-president of the People's Bank of China, says China lacks a well-developed credit system and actually practises the mandatory policy of cutting down investment in fixed assets. The public is not accustomed to buying and selling securities; and the government needs time to study a series of important questions concerning issues and transfers of bonds and debentures.

Masanori Ito, former deputy general manager of Japan's Nomura Securities Co. and now economic advisor to the Chinese government, says inefficient bookkeeping and an inadequate legal system, insufficient specialized organizations, a serious shortage of trained personnel and the lack of enterprise autonomy all are obstacles in the way of China expanding its direct financing.

Shi Lei and Ao Huicheng, two experts at the Planning Department of the People's Bank of China, believe there is not enough idle money in society to fuel an expansion of the long-term financial markets. According to statistics they collected, bank deposits total 400 billion yuan. This breaks down into the following: Enterprise deposits, 160 billion yuan; treasury deposits by governments at various levels, 520 million yuan; deposits made by Party and state departments, people's organizations, army units and rural credit co-operatives, 100 billion yuan; and personal deposits, 100 billion yuan. The first three categories are needed working funds and cannot be put into circulation in the financial markets. As for personal savings, most of them will be spent on consumption and only one-third can possibly be used to buy securities.

Apart from these deposits, there is an estimated total of 140 billion. yuan of extra-budget funds, the profits retained by enterprises since the introduction of flexible economic policies. Most of these, however, will be used by the enterprises to cover costs for updating their equipment, welfare, bonuses, etc. Not much would be left for the financial market.

Therefore, the two experts conclude, a major development in China's securities market is out of the question in the next few years.

(No. 5, 1988)