The value of stocks listed on China's bourses surpassed that of Hong Kong for the first time as benchmarks surged and the government encouraged the domestic listing of state-owned companies.
The combined capitalization of shares listed on the Shanghai and Shenzhen exchanges totaled 13.95 trillion yuan (US$1.81 trillion) on Tuesday, according to the Web sites of the two bourses, surpassing that of HK$13.97 trillion (US$1.79 trillion) in Hong Kong.
"It's a reflection of the fruit of China's economic growth," said Zhang Ling, who manages about US$1.1 billion at ICBC Credit Suisse Asset Management Co in Beijing. "Hong Kong is an offshore market that heavily relies on mainland backing."
The value of China's shares has more than tripled since July 2005 after a government plan to make more than US$200 billion of state-owned stock tradable revived investor demand and paved the way for sales by some of the nation's biggest companies.
The economy, which in 2005 overtook the UK as the world's fourth biggest, has averaged annual growth of 9.6 percent in the past five years.
"In the long term, China's stock markets will definitely grow faster because there are many mainland companies which have not been listed yet," said Louis So, who helps manage US$3.5 billion at Value Partners Ltd in Hong Kong. "China's economy is one of the world's fastest growing. Add to that: The Chinese government encourages mainland companies to go public."
The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has gained 53 percent this year, after jumping 117 percent last year.
China's stock exchanges were set up in 1990, as late leader Deng Xiaoping (鄧小平) sought to drive development of capitalism after ditching hard-line Communist policies in 1978 in favor of free-market reforms.
In May 2005, the China Securities Regulatory Commission restored a program to convert all companies' non-tradable shares into tradable common stock.
Investors, concerned the conversion of non-tradable stock would flood the market with unwanted shares without compensating minority shareholders, pushed down the Shanghai index to an eight-year low in July 2005.
To win approval from small investors this time, major shareholders of listed companies were required to offer free stock or cash as compensation for any loss tied to an increase in share supply.
The regulator also imposed a yearlong moratorium on new share sales.
China's economy expanded 10.7 percent last year, boosting banks' earnings.
Newly listed lenders have also helped drive gains in the index. Industrial & Commercial Bank of China Ltd (ICBC,