China's Tianjin seeks approval for OTC stock market

The northern Chinese city of Tianjin is seeking central government approval to launch the country's first national over-the-counter (OTC) stock exchange, which would expand fund-raising options for small firms.

The proposal, submitted during the annual session of China's parliament this week, would allow non-listed companies to transfer or trade shares under unified supervision by the Chinese securities regulator.

"Tools for direct fund-raising in China are very limited," the Tianjin city government said in a proposal to the State Council, or cabinet, a copy of which was obtained by Reuters on Friday.

"Most companies are still heavily relying on indirect fund-raising from commercial banks, which has caused relatively big risks in the (banking) system," it added.

The city government of Tianjin first applied in September 2006 for approval for a national stock exchange, aiming to join the ranks of China's two other stock market centres in Shanghai and Shenzhen, a boomtown near Hong Kong.

The proposed site of the OTC market, the Tianjin Binhai New Area targeted as a financial and economic centre for northern China, has already attracted billions of dollars in investments from multinational corporations such as Motorola Inc and Toyota Motor Corp <7203.t>.

MULTI-TIERED MARKETS

The plan for an OTC stock market in Tianjin has won strong support from the National Development and Reform Commission, China's top economic planning agency, but still needs final approval from the cabinet, the proposal document said.

Beijing gave the nod to Shanghai and Shenzhen for their stock exchanges in late 1990. There are now more than 1,400 listed companies on the two bourses.

Regulations require that large Chinese firms such as Industrial and Commercial Bank of China <601398.ss>, the world's largest bank by market value, list in Shanghai, which investors consider the country's main board.

On Thursday, Fan Fuchun, vice chairman of the China Securities Regulatory Commission, said the regulator planned to launch a national OTC stock market after the establishment of a proposed Nasdaq-style market for Chinese startup companies in Shenzhen.

Fan did not give a timeframe for the planned OTC market, but many Tianjin delegates who were in Beijing for this week's parliamentary meetings expected their city to win the final nod from regulators before the end of the year.

The CSRC has said it aimed to launch the Nasdaq-style second board not long after the parliament session ends in mid-March, and its chairman Shang Fulin said listing rules would be ready for release in April.

Beijing is aiming to build a multi-tiered capital market structure that could better serve the increasingly diverse needs of its domestic firms, in particular small- and medium-sized enterprises, to raise funds for rapid growth.