"By April or May, it should be time for sales to be resumed," Zhou said. "Good-quality companies, namely blue chips, should sell new shares first."

Regulators stopped new issuance in May to avoid a flood of equity as companies pursued plans to make more than US$200 billion of mostly State-owned stock tradable.

Workers in the Shanghai Forever bicycles wait for customers at an international bicycle exhibition in Shanghai, on May 4, 2005. It is reported on October 19, 2005 that as the first listed company to launch a State-share reform plan involving B shares, Shanghai Forever attracted much attention from the market. In the recent briefing on Shanghai Foever's split-share reform, its major shareholder the Zhonglu Group board chairman revealed its innovative idea of buying back B shares. [newsphoto]

Shanghai was the world's fourth-worst performing market in 2005 because the smaller, State-owned manufacturers that dominate the exchange weren't the driving force of the world's fastest-growing major economy.

PetroChina, the country's biggest oil producer, is among the Chinese companies whose shares are listed in Hong Kong and New York but not on the mainland. Allowing them to sell shares domestically may help boost the total value of the markets, in Shanghai and Shenzhen, to third in Asia by the end of next year from seventh, Zhou predicted.

"The resumption of share sales is good news for the stock market in the long term," said Zhang Ling, who manages the equivalent of US$720 million at First Trust Fund Management Co in Shanghai. "So long as the quality of companies is good, we won't reject it."

Zhou, 54, is in charge of listings at the exchange and regularly meets with the China Securities Regulatory Commission, which sets the share-sale policy. Commission Chairman Shang Fulin said resumption of sales hinges on progress in converting shares, the Shanghai Securities News reported last week.

Zhou said the State-share conversion program would let the market sustain its advance and make room for listings.

"If the first one can be PetroChina, which accounts for a quarter of State-owned enterprises' profits, and the price is in line with global standards, our investors will definitely want it," he said. Share sales by listed companies will be started before initial public offerings, Zhou said.

Other Chinese companies with shares traded in Hong Kong will also seek to list in Shanghai this year, Zhou said. He named China Construction Bank Corp, the nation's third-largest bank; Bank of Communications Co, the fifth-largest bank; and China Shenhua Energy Co, the biggest coal producer.

"We have a batch of companies who are listed overseas whose resources are based in China and we believe they will return," he said. "This will let Chinese investors share the fruits of their success."

These companies may sell shares at about 10 times earnings per share as the average price earnings ratio for the Shanghai Composite Index has fallen to about 16 times, from a peak of almost 60 times, he said.

The government scrapped attempts to convert non-tradable equity into common stock in 1999 and 2001 after shares sank on concern the plans would flood the market with unwanted equity. This time, the 1,300 companies involved were advised to arrange compensation programs and lockup periods to reassure investors.

"After companies accounting for 50 per cent of the market value complete their share conversion plan, new share sales can be restarted," Zhou said.

Companies representing 90 per cent of the markets' value will have made shares tradable by year-end, up from 30 per cent now, he said. He added that this will make the status of the state's shares clearer and encourage mergers and acquisitions.

The biggest sale of stock in China by a mainland company listed in Hong Kong was the 11.8 billion yuan (US$1.46 billion) sale in August 2001 by China Petroleum & Chemical Corp, Asia's largest oil refiner. Zhejiang Sanhua Co, a valve maker, was the last company to sell new shares in China on May 24.

"Great caution should be given to the resumption of new share sales," said Li Yan, who helps manage the equivalent of US$3.6 billion at Harvest Fund Management Co in Beijing. "The most important thing for the stock market now is stability."

Larger companies will attract institutional investors, Zhou said. Insurance funds had 1.2 trillion yuan invested in stocks, equivalent to 5 percent of assets, at the end of 2005 and the government may allow them to invest a larger percentage this year, he said.