Wuhan Bids for Third Chinese Stock Market

IN the crowded, smoky trading room at Wuhan Securities Company, Kang Wei milled nervously and awaited the stock market closing.

Last year, the 24-year-old Mr. Kang quit his engineering job and began trading fulltime, buying admission to Wuhan Securities' select club of dahu or major investors with a $23,000 stock investment.

Daily, he huddles over computer terminals with dozens of other youthful investors, most under the age of 30, and watches news trickle in from China's two stock exchanges in the coastal financial centers of Shanghai and Shenzhen.

Frustrated by frequent failures in the computer hookup and by the inadequate share information available in this central Chinese city, Kang and other traders say they look to the day when Wuhan can boast its own stock exchange.

``Shanghai and Shenzhen want to protect their regional positions and oppose establishment of another stock exchange,'' says Kang, watching results of another dismal day on the bear market. ``But China's economic development hinges on the cities in central China and the development of the Yangtze River valley. Currently, the gap between inland and coastal areas has to be narrowed.''

For centuries the gateway to inland China, Wuhan is trying to regain some of its former glory and grab a piece of the action from fast-growing coastal regions.

Since China opened to foreign investment and capitalist ways 15 years ago, the eastern seaboard has spearheaded market-style reforms and monopolized foreign investors unwilling to risk poor transport and other interior rigors. This has created a yawning per capita income gap, with an average annual income of more than $1,000 in some major eastern cities and a low of $150 a year in some landlocked inland pockets.

But that is going to change, say Chinese officials and foreign economists. As wages increase and real estate prices climb in the east, foreign factory owners are looking for less expensive interior locations where wage levels are less than half of those on the coast.

``Wage levels on the coast have increased dramatically in the last few years. So companies are moving northward and inland in search of more competitive rates,'' says Nyaw Mee-Kau, an economist at Chinese University of Hong Kong.

The government in Beijing hopes Wuhan, a decrepit industrial metropolis with almost 7 million people and a permanent haze of pollution, will be at the cutting edge of that trend. Following in the footsteps of Guangzhou in Guangdong Province and Chengdu in Sichuan Province, the Hubei Province capital was designated the third city to be developed as a trade, finance, and transportation center in China.

Already, efforts are under way to develop a $2 billion industrial park and container-handling complex near Wuhan with the help of Hong Kong tycoon Peter Woo and his company, Wharf (Holdings) Ltd. Planned foreign investment projects have jumped from 180 in 1991 to more than 2,000 this year. And city officials are trying to lure more entrepreneurs with plans to make Wuhan a rail hub on a new line under construction from Beijing to Shenzhen.

But transforming Wuhan will be daunting, city officials admit. With more than 4,000 industrial enterprises, Wuhan has a vast, but crumbling industrial base that is only second to Shanghai in volume of goods produced. As economic pressures have tightened on inefficient enterprises, the city has become a camp for thousands of unemployed workers and migrants from the countryside.

``Wuhan has special conditions in economic development. It's a large, old industrial city. How to deal with all these old enterprises causes the city a lot of problems that other cities don't have to deal with,'' says Li Pan, a municipal official.

A cornerstone of Wuhan's campaign is winning the sweepstakes to establish the next stock exchange in China. Already China's largest bond trading market, Wuhan is building a 40-story financial center in hopes of beating out Tianjin, Shenyang, and Chongqing for the stock market.

``To rebuild state enterprises and turn them into shareholding enterprises, we need to set up more stock exchanges,'' says Zhao Ziming, vice chairman of the Wuhan Securities Company, the leading brokerage house in a market that did $1.5 billion in stock and bond trading in 1993.

But, of late, soaring inflation, rampant speculation, and plummeting stock prices have clouded China's financial picture and the prospect of a third exchange.

Last month's launch of a nationwide foreign-currency-trading center in Shanghai was disrupted with technical problems and confusion over regulations. The new interband-currency market is intended to establish a banking structure for handling currency exchange along the lines of developed countries.

The China Securities Regulatory Commission announced late last month that it was closing an undisclosed number of futures exchanges and brokerages and halting trading in dozens of commodity futures contracts. For months, the government had been warning that it would bring the freewheeling industry under closer regulation and stop speculation that is fueling inflation.

In stock trading, China last week signed a cooperation pact with the United States Securities and Exchange Commission that will allow five Chinese companies to list on the New York Stock Exchange. The agreement will ensure safeguards for investors trading in the shares of China Eastern Airlines, China Southern Airlines, Huaneng International Power Development Company, Shandong Huaneng Electricity Company, and Tianjin Steel Pipe Factory.

But at home, Chinese regulators put off the decision on the third exchange. Also, they said they will hold the value of new stock issues allowed this year at $600 million. Unable to iron out the details of a new securities law, the government has said the new legislation, eagerly awaited by a lot of traders, will not be approved in the near future.

``The government should have well-thought-out policies to protect the nascent stock market,'' says Kang, the Wuhan investor.