How to tell China's first `stock market' from a noodle stand. It isn't easy; just look for the window slot in Shenyang selling bonds

When China's first ``stock market'' opened earlier this month in the industrial city of Shenyang, it was closer to being a noodle stand on a dusty street corner than the beginnings of an important financial institution. Under the open eaves of a drab, three-story building and next to a dirt parking lot in a noncommercial section of Shenyang, local bondholders may now apply through a window slot to buy or sell one of two industrial bonds. The rates for the two tradable bonds are painted on a board outside.

Each day since the office opened on Aug. 5, a handful of people stand in line waiting to fill out the forms required for a transaction.

The office is a limited experiment in setting up a secondary market for bonds, the first public trading of commercial paper permitted in China since 1949. It is an experiment, advocated for several years by a few Chinese economists, to explore how yet another capitalist financial tool can be adapted to the needs of a socialist economy.

The manager who runs the market, Meng Tie, said it will benefit those bondholders who need ready cash. He stressed that, for now, treasury bonds and company shares may not be sold.

The first full-scale public offering of company stock in China since 1949 took place in Guangdong Province two years ago. According to press reports, thousands of people came in from outside the region to buy the shares, offered at about $30 each, but no public trading was allowed.

In Shenyang last year, some $54 million in bonds and company shares were sold, according to the official New China News Agency. This is a modest sum compared with other parts of the country, especially southern China. In recent years, Chinese corporations have raised several billion dollars through public offerings.

Analysts say, however, that Chinese ``bonds'' are very different from those in the West. Except for the industrial bonds issued recently in Shenyang, they are not transferable. Also, Chinese bonds are closer to being certificates of deposit, which carry fixed rates of interest and are redeemable after two or three years. Many Chinese bonds function as lottery tickets, offering prizes to the holders and bearing little interest.

Hundreds of rural enterprises have also issued shares they call ``stocks.'' But these do not represent equity in the company and often are issued in lieu of pay bonuses which are limited by the state.

``The problem is there is no way to trade this stuff,'' said a foreign analyst, referring to the growing need for a secondary market for stocks and bonds throughout the country.

A senior bank official in Shenyang told a foreign visitor recently that beginning next year, the city would issue real public shares in local enterprises, which would give the shareholders equity as well as voting rights. He said that next year they would issue proper commercial bonds with interest rates to be fixed above bank savings account rates. He also announced plans for a 25-story building to house the city's ``stock market'' and other financial institutions.

China's State Council approved last week the issuance of 536 million yuan (about $145 million) worth of bonds to finance the construction of a petrochemical plant in Shanghai. This is the first time a key state project has been funded with a bond issue, according to the New China News Agency.

The debate in China over these new forms of public financing and over more pluralistic forms of company ownership has been cautious and low key. This reflects the practical as well as ideological problems of adopting financial mechanisms from the West, foreign observers say.

One advocate of reform in the state ownership of enterprises, Liu Guoguang, has said that a highly centralized state ownership system -- such as what China inherited from the Soviet Union -- is not conducive to economic development.

Mr. Liu, a vice-president of the Chinese Academy of Social Sciences, told an economic symposium last year that if a stock ownership system could be adapted to China, it would make ownership more concrete, fixing responsibility for production and improving the effective use of capital. Now state enterprises belong to everybody in theory, and nobody in practice, he said, according to the economic daily.

Liu has been cautious in his views, however. He has also said that if stock in state enterprises was issued primarily to individuals, the concept of public ownership would be eroded.

Other specialists, including those at the powerful Ministry of Finance, oppose the stock system. Among their reasons are that it would bring confusion over ownership and the state's loss of administrative control over industry. State enterprises would then be less willing to create jobs for the unemployed, and dispersal of ownership would seriously affect state revenues, since a company's profits would have to be shared with stockholders.

An acute shortage of investment capital and the rising level of public savings have presented a challenge to financial planners. In the last five years, savings deposits in China have increased four times to some 162.26 billion yuan (about $43 billion) at the end of 1985. The increase in savings has been greatest in the prosperous rural areas, according to the official Economic Daily.