More stock listings won't help the market

In the face of declining stock markets, Beijing's China Securities Regulatory Commis-sion announced on Aug. 31 that it was temporarily halting initial public offerings (IPOs).

The reason given was the excessive supply of shares in the market. Stimulated by this favorable news, the stock markets in Shanghai and Shenzheng immediately rose. Given that shares of 16 companies listed on the two bourses since the beginning of the year have dropped below their issue prices, the commission's new measure was certainly warranted.

Strangely, many in Taiwan -- including the pro-unification media, business scholars and securities agencies, as well as Taiwanese businesspeople operating in China, have recently advocated a completely different view, which has gained the recognition of some legislators and even government officials. These people are urging the government to allow Taiwanese companies investing in China to be listed on Taiwan's stock market. This, they say, would boost the domestic market, bring in more capital and prevent Taiwan's market from being replaced by the Chinese stock market. Their logic is: the more IPOs, the stronger the stock market.

If this concept is correct, then the commission's measure to halt new listings must be wrong. In fact, according to this logic the most effective way to save China's stock markets is not to halt IPOs. Rather, the Chinese government should accelerate the IPOs of Taiwanese and foreign companies in Shanghai and Shenzheng by offering more preferential conditions. This will not only excite the market, the logic implies, but also attract foreign capital, which will also benefit the growth of China's capital market, eventually turning it into a funding center in the Asia-Pacific region.

Why did Beijing not accept this logic? Was the commission's decision wrong? The answer is clearly "No." Before the decision was made, I believe the commission must have made a thorough study of the matter, based on China's national interest and the long-term development of the country's stock markets. The Chinese market's reaction to the measure was also positive.

Now, if the commission's decision was actually correct, it follows that the Taiwanese businesspeople's logic must be flawed. It also raises several questions. First, by encouraging Taiwanese companies to return to Taiwan and list on the local stock market, will the nation repeat the mistakes of Shanghai and Shenzheng, as the stock market's capitalization increases? Second, will this damage price-earnings ratios and hurt our local investors, while indirectly punishing businesses in Taiwan? Third, will the Taiwanese companies currently in China mix the good with the bad when they return, and therefore damage the stock market's credibility? Forth, are these companies transparent and is the government confident of its ability to protect investors? Fifth, if some poorly operated Taiwanese companies also return to Taiwan, will they scare foreign capital away and dash Taiwan's dream of becoming an Asian-Pacific funding center?

Perhaps should feel lucky, as Beijing's decision to halt IPOs can serve as a lesson. Thus, comments by Taiwanese businesspeople in China that Taiwan's advantage will disappear if the government fails to attract them back are absolute nonsense. The comments are motivated by selfishness. It is a tricky trap originating from the ideology of hollowing out the nation. Are the Taiwanese people willing to jump into this trap? I truly hope the government will think twice before it acts.

Huang Tien-lin is a national policy adviser to the president.

TRANSLATED BY EDDY CHANG