By Lu Jianxin - Analysis
SHANGHAI (Reuters) - China's rescue of its stock market last month was a spectacular success, boosting the main Shanghai index by more than a fifth in two weeks. But it marked a larger failure.
By slashing the stock trading tax -- raised less than a year earlier to curb excessive speculation -- and imposing curbs on the sale of large blocks of shares, regulators effectively acknowledged that Shanghai could not function as a free market.
Massive growth in the past two years has catapulted the Shanghai Stock Exchange into the ranks of the world's biggest markets. But it remains a sideshow for most international investors, and a poor indicator of the value of Chinese firms.
"Shanghai can no longer be ignored by its global counterparts, at least in terms of size," said economist Jin Dehuan at the Shanghai Securities and Futures Institute.
"But its development involves strong policy intervention by the government, it's still far from being a free market, and it's not an accurate barometer of China's economy. Its growth into a real, global stock market will take many years."
Since regulators lifted a ban on initial public offerings of shares in mid-2006 and began encouraging top Chinese firms to list domestically, the Shanghai exchange's capitalization has ballooned more than sixfold to about $2.9 trillion, making it Asia's second biggest stock market after Tokyo.
EXPANSION
The expansion has achieved one key policy goal: making the market an important source of funding for firms, thus helping to cut their reliance on bank loans. Since mid-2006, nearly 40 major firms have raised some $86 billion through IPOs in Shanghai. Continued...
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