China's stock market, which has long been dominated by listings of State-owned enterprises, will open wider to fund-thirsty private firms seeking capital.

Among the Chinese firms preparing to list in the domestic A-share market, 40 per cent are owned either by non-State entities or individuals rather than the State, indicates a source with the securities watchdog.

"This will mark a dramatic increase in the number of private enterprises making initial public offerings (IPOs) in the coming years," said Wang Kai, an analyst with Huaxia Securities Research Institute under Huaxia Securities Co.

These financially strapped firms - which contribute more than 60 per cent of China's annual GDP (gross domestic product), despite being supported by only 30 per cent of China's financial resources - will be able to access the domestic A-share market, Wang said.

Five private enterprises so far this year have raised more than 1.9 billion yuan (US$228.91 million) through IPOs in China's A-share market.

This compares with 5 billion yuan (US$600 million) raised by all domestic firms through IPOs during the January-March quarter this year.

"The speed-up of IPOs by private firms has mirrored efforts by authorities to level the playing field for all firms seeking public listings," said Wu Zuyao, a research fellow with Galaxy Securities Research Centre under Galaxy Securities Co.

China's stock market, originally designed to facilitate the financial needs of State-owned enterprises, has been criticized for not meeting private-sector firms' needs.

Although no articles in the Securities Law explicitly discriminate against non-State sector firms, some strict listing requirements have limited the number of private firms that have entered the stock market, either through IPOs or by buying into listed companies, Wu said.

Securities underwriters, including large securities companies, are gradually readjusting their strategies to embrace more private firms in their IPO underwriting businesses, Wu said.

Private firms have also accelerated their efforts to enter the domestic stock market by taking over listed companies in a bid to bypass the seemingly endless waiting queue.
This is because more than 2,000 companies are now waiting to make IPOs, while the market can only accommodate 100 per year, analysts suggest.

The listed companies, often weighed by mounting bank loans and inferior corporate governance, are usually willing to offer comparatively low take-over prices, analysts said.

But considering the high costs and risks involved in restructuring the existing companies, more private firms are launching IPOs domestically or overseas, analysts said.

Early last month, the China Securities Regulatory Commission (CSRC), the industry's watchdog, abolished issuance of the "no-objection" letter to all firms preparing to list in Hong Kong.

The move reduces by four months the approval procedures concerning such listings. It was welcomed by private enterprises.

Mainland companies, including H-share and red-chip firms listed in Hong Kong's main board or Growth Enterprise Market (GEM), have raised more than US$51 billion in Hong Kong market, indicates Credit Suisse First Boston.

However, Chinese private enterprises may find themselves in an unfavourable position in overseas markets compared with two years ago, analysts warn.

"China's so-called 'private chips' have been dumped heavily by overseas investors since a series of scandals were disclosed last year," said Liu Mengxiong, a consultant with Core Pacific-Yamaichi International Ltd.

The recent fall of Euro-Asia Co, whose chief executive Yang Bin was arrested late last year and charged with fraud, has deterred overseas investors from buying shares of China's private firms.

Since 1992, when the first private enterprise in China made its debut in Shenzhen's stock exchange, more than 160 firms have launched IPOs in the A-share market.
In comparison, more than 80 per cent of domestically listed firms are State-owned. They represent a combined market capitalization of 3 trillion yuan (US$361.45 billion).