The non-tradable shares account for about two-thirds of the total shares from domestically listed firms.

The shares were once permitted to be transferred to foreign investors but the transfer was suspended in 1995, until the Chinese Government lifted the ban at the weekend.

A circular jointly issued late on Sunday by the China Securities Regulatory Commission, the Ministry of Finance and the State Economic and Trade Commission gave the green light.

But the deals have to follow foreign investment guidelines, which were designed by the central government on the ratio and form of foreign investments in different industries and are renewed each year. It means not all of the estimated 1,200 listed companies are immediately able to take part in the programme.

Certain textile, machinery and traditional medicine companies are still off base to foreigners, said Zhou Dao, an analyst with Southwestern Securities.

But in general, the new policy will boost foreign mergers and acquisitions (M&A) in domestic listed firms and help introduce foreign strategic investors and expertise to the firms, said Hu Ruyin, director of the Shanghai Stock Exchange's research centre.

The requirement for a minimum one-year investment period will ensure medium and long-term investment and avoid speculation.

"It sets up a comprehensive framework for such foreign M&A for now and the future, which is easier to follow than individual cases," Hu said.

Foreign investors will be able to control some listed companies only if they comply with existing foreign investment rules.

Analysts said some companies will benefit more than others under the new rules, including those already involved in Sino-foreign cooperations.

Hu said more progress is needed in the opening-up of China's stock market.

The liquidity problem is yet to be solved because the shares available to foreign investors are nontradable on the secondary market.

It is not clear if domestic private investors can take part in the new programme or not, which has an impact on their enthusiasm.

Presently, the government is working on ways to open up tradable shares to foreign investors.

(China Daily November 5, 2002)