The mainland's stocks surpassed US$1 trillion in value after major benchmarks rallied and the government encouraged the domestic listing of State-owned companies such as Industrial & Commercial Bank of China Ltd.

The combined capitalization of shares listed on the Shanghai and Shenzhen exchanges rose to US$1.01 trillion Wednesday. The mainland now ranks as Asia's third-largest market, after Japan's US$4.8 trillion and Hong Kong's US$2.1 trillion.

Mainland shares more than tripled since July 2005 after a government plan to make more than US$200 billion of State-owned stock tradable revived investor demand and paved the way for sales by some of the nation's biggest companies.

"China's market value will be able to soon catch up with Japan, if the government keeps up the fast pace of new share sales," said Lin Tongtong, who manages about US$182 million at HSBC Jintrust Fund Management Co. in Shanghai. "It's an inevitable result of the market rally and the addition of IPO shares."

Industrial & Commercial Bank of China's shares have jumped 76 percent since its world-record US$22 billion initial public offering in October. The shares are valued at 36.7 times the bank's earnings, compared with 17.85 times for stocks listed on the Morgan Stanley Capital International Asia-Pacific Index.

The Shanghai and Shenzhen 300 Index, which tracks yuan-denominated A shares listed on the mainland's two exchanges, has gained 9.3 percent this year, after jumping 117 percent in 2006. Its shares are valued at 33.69 times earnings.

The index tracking hard-currency B shares in Shanghai jumped 7.2 percent Thursday on speculation its stocks will be merged with local-currency shares. The securities regulator denied any merger plan.

The Shanghai Composite Index, comprising all stocks traded on the Shanghai exchange, surged 127 percent last year and closed at an all-time high Wednesday. The measure lost 2 percent Thursday. China Petroleum & Chemical Corp. and China Merchants Bank Co. were among the biggest contributors to the gains this year.

Mainland stock exchanges were set up in 1990.

In May 2005, the China Securities Regulatory Commission restored a program to convert all companies' non-tradable shares into tradable stock. Investors, concerned the conversion of nontradable stock would flood the market with unwanted shares without compensating minority shareholders, pushed down the Shanghai index to an eight-year low in July 2005.

To win approval from small investors, major shareholders of listed companies were required to offer free stock or cash as compensation for any loss tied to an increase in share supply. The regulator also imposed a year-long moratorium on new share sales to ensure the market wouldn't be inundated.

Sinopec, Asia's biggest oil refiner, has climbed 105 percent since Oct. 10, when its parent gave public investors 2.8 shares for every 10 held as it converted its nontradable shares.

To soak up the shares and prevent the market from slumping, the securities regulator allowed commercial banks to set up fund-management units and doubled to US$10 billion the amount of money foreign investors can invest in domestic equities.

A total quota of US$9 billion has so far been granted to 53 select overseas institutions under the qualified foreign institutional investor, or QFII, program.