BEIJING, May 17 (Xinhuanet) -- China has been moving in the right direction in solving major problems facing its stockmarket, which has been at a six-year low despite the booming economy, Kevan Watts, chairman of Merrill Lynch International Inc. said Tuesday.

Addressing "Understanding China's Capital Markets," a general session of the 2005 Beijing Fortune Global Forum, Watts said the Chinese government has been addressing those problems very directly.

China has established six ministerial working groups in the past two years to tackle major problems regarded as hurdles for the stockmarket, focusing on listed companies, the intermediaries, and the investors, he said.

China has also moved to improve the legal structure of the securities system, and has begun to launch experiments to solve the non-tradable share issue earlier this month.

The Chinese economy has been growing at an annual average of 9.4 percent over the past 26 years since 1978, but its stockmarket is now at six-year low.

Stuart T. Gulliver, chief executive of corporate investment banking and markets of HSBC, said that performance of the Chinese stockmarket has been very "puzzling" as it does not reflect the business cycle of the economy at all.

"Overseas, we generally expect the stockmarket to be the leading indicator of the economy, here it is not necessarily the leading indicator at all."

"Most shares listed domestically are shares that perform quite badly, the SOEs (State-owned enterprises) are not the best SOE's, and the danger China faces is that the very best ones get listed in Hong Kong and New York, leaving the domestic market with less better ones, that causes enormous weight on the stockmarket," he said.

When asked whether the Chinese government is moving in the right direction and at the right speed, Watts said the Chinese government is moving in the right direction.

"You can always debate about speed. But I am a gradualist, I would be in favor of doing more, but gradually."

He said the Chinese capital market is less than 15 years old and has seen a remarkable revolution.

Zhou Xiaochuan governor of China's central bank, said he agrees with Watts.

"I agree that people should be gradualists on (that matter). However, Chinese capital market reform has been accelerated recently," he said.

He was referring to the experiments to solve the non-tradable State or legal person shares, which account for two thirds of the total shares of China's 1,400 listed firms.

Watts said China needs to educate its investors, its intermediaries and companies. In the case of the long-term health of China, the authorities need to develop institutionally-based investors domestically. Part of that process is also strengthening brokerage firms and intermediaries. That process is underway, as indicated by the involvement of foreign firms through joint ventures.

"The beauty of joint ventures is that they ensure technology transfer. All of us in our joint ventures in the securities market will be working with local Chinese individuals and securities firms, and they will be learning very, very fast from how we run our trading business, and how we manage our relationships with institutional investors."

He said the QFII (qualified foreign institutional investors) has similar price leadership. The foreign qualified investors also would provide price leadership in stock selection.

Foreign companies, like Merill Lynch, Morgan Stanley, can now operate joint ventures locally. "These are welcome developments, (which are) very much focused on specific issues."

On immediate and short-term measures China should take, he saidChina should move its B shares to its H share markets, and then allow the non-tradable shares, doubling the QFII quota and give the green light to QDII (qualified domestic institutional investors).