Report: China Set to Regulate Online Stock Trading

HONG KONG (04/14/2000) - Chinese securities regulators have established provisional rules for online stock trading, according to a report by the official Xinhua news agency.

The rules ban non-brokerage companies, such as general Internet portal operators, from offering online brokerage services. Any licensed brokerage will have to apply for permission to launch online services, according to the report.

Another stamp of approval for the fledgling e-commerce industry in China came from the China International Commerce Commission.

The organization has established a subgroup, the China E-Commerce Commission, to promote e-commerce, according to a report today on the Web site of the official People's Daily newspaper.

The organization will work to enhance communication between companies and government on e-commerce, educate merchants, and promote legislation to create a legal foundation for e-commerce, the report said.

China E-Commerce Commission will be headed by Chen Wei, vice director of China Merchants Bank, and initially will be made up of representatives from banks and traditional businesses. E-commerce vendors will be included later, the report said.

Kick-starting e-commerce in China will require a great deal of such promotion and groundwork, according to Gary Liu, an analyst at Sassoon Securities, in Hong Kong.

"The basic infrastructure, including the legal and physical infrastructure, has not been very well established," Liu said. "They need to develop first the legal infrastructure."

The tight regulation of online trading is not surprising and is likely to stunt the development of an already slow-growing market in China, said Matthew McGarvey, an analyst at International Data Corp. Asia-Pacific, in Hong Kong.

"You're not going to see the revolution of discount brokerage houses like ETrade coming about, which is at the heart of what makes online trading attractive," McGarvey said.

IDC estimated that at the end of 1999, only 2 percent of China's 40 million stock investors had made online trades. By 2004, that figure will have grown only to 12 percent, the researchers estimated.

The early stage of development for Internet infrastructure and for stock trading, along with heavy regulation, are to blame, McGarvey said.

"All of Asia-Pacific is going to see explosive growth in the next few years," he said. "With China, you don't see that happening."

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