Government officials have started to warn that share prices are being artificially inflated by an unprecedented expansion of new loans from China’s state-owned banks as part of the government’s stimulus package to counter the global recession. Chinese banks lent more than $1,078bn in the first half of the year, triple the amount extended in the same period a year earlier, raising concerns among some regulators that equity and real estate prices are likely to suffer when the government eventually reins in the pace of this unsustainable lending frenzy. The mainland Chinese market “is very policy driven and the talking point for the market now is when credit tightening is coming,” according to Erwin Sanft, head of China and Hong Kong research at BNP Paribas. “When the government does at some point introduce serious credit tightening measures that will drive the market back down.”

Everbright Securities plans to sell 15.2 per cent of its expanding equity starting from Tuesday. It will offer 30 per cent of the new shares to institutional investors directly and will sell the remainder to institutional and retail investors through a public bidding system. The IPO will be the second by a Chinese brokerage, following Citic Securities’ $213m IPO in 2002.

None of the other eight listed Chinese securities companies sold shares through an IPO, with most of them choosing to do so-called “backdoor listings”, by acquiring publicly-listed shell companies. Everbright said its profits jumped 20 per cent in the first half of this year from the same period a year earlier, as trading volumes rebounded and stock prices rose. The company’s full-year earnings in 2008 fell 71 per cent to Rmb1.37bn ($200m).

Chinese brokerages, having listed companies producing everything from medicine to cement in recent months, are now taking the logical next step: going public themselves. Everbright Securities, the country’s 11th biggest by assets, plans to raise up to $1.6bn in what would be the sector’s first initial public offering in seven years. Lining up behind it are two more brokers, China Merchants Securities and mid-sized Industrial Securities.

Why not? Markets are hot, and new share issues – which restarted last month after Beijing lifted a 10-month moratorium – are being gobbled up. Booming business has further burnished the brokers’ credentials. Turnover on the Shanghai stock exchange has quadrupled since last August. And, while the benchmark Shanghai Composite Index has risen by 90 per cent this year, the brokerage business has run even further ahead. Citic Securities, the industry’s listed giant, has seen its shares gain 112 per cent.