Starting in August, China will allow investors to take out loans to buy shares and to sell borrowed stock, moves aimed at tapping the country's US$4 trillion of bank deposits and at boosting trading, Bloomberg reported.

Under a trial program, brokerages must have net assets of at least 1.2 billion yuan (US$150 million) in the past six months to qualify for a license to offer these services, the China Securities Regulatory Commission said in a statement on its Website yesterday. The brokerages must also have been in operation for three years and be endorsed by the China Securities Association, the statement said.

The move may generate income for brokerages and boost funds available for investment after the government in May ended a yearlong ban on public share sales, paving the way for offerings by companies including Bank of China. The nation wants to bring its stock market in line with global practices and sustain a recovery in benchmark indexes from eight-year lows last year.

An investor buying on a margin pays only a percentage of the cost of the stock, with the brokerage financing the rest through a loan. In short sales, investors sell stock they have borrowed in anticipation they can buy it back later at a lower price and profit from the difference.

Under the new rules, brokerages can't offer investors loans at rates lower than the central bank's lending rate, the regulator said. Investors can only open such accounts with one brokerage at a time, the statement said.

The statement didn't specify a margin limit, or the maximum investors can borrow. In the US, investors must put down at least 50 percent of the purchase price when they buy shares.
 
Editor: Yan