The announcement that the Chinese government will now be allowing domestic investors to invest in hard currency B-shares, previously only available to foreigners, will surely cause excitement, and a short term trading surge is almost certainly on the cards. But will it tempt more Chinese investors to take the plunge into online trading?
Under legislation passed last May, companies offering online trading services must be approved by the China Securities Regulatory Commission, and last week the Commission announced the names of the 23 domestic securities brokerages that it believed were up to the job. The chairman of the CSRC, Zhou Xiaochuan, has offered assurances to the financial community that the securities watchdog would work to facilitate Internet-based trading, and the industry hopes that the recent government announcement will help to increase the profile and appeal of online trading.
However, it does not look like it will be plain sailing, even for those brokers that the CSRC have approved. In a survey conducted by the Social Survey and Investigation Office of China last year, 72% of participants believed that security was going to be the biggest problem with online trading, and this is a valid concern - at the moment, the level of encryption permitted by the government is below that needed to access a US online bank account. Other factors hindering growth include the fact that access to personal computers is still limited in China, and existing online traders have to compromise on speed and price accuracy, due to the relatively late development of Chinese e-commerce.
Until these factors are addressed, mainland traders are likely to look upon online trading with distrust, so it seems that despite the hopes of the industry, the predicted surge on the B-share markets is likely to occur through more traditional channels.
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