The rules, published in major securities newspapers to solicit public opinions, mark a step closer to the launch of the second board that has long been delayed partly because of the burst of the Internet bubble in 2000.

The exchange, to be located in the southern city of Shenzhen, will provide an exit route for private equity investors, who have poured billions of dollars into the world's fastest-growing major economy.

The draft rules set a much lower listing threshold than those for the country's main boards in Shanghai and Shenzhen, where most of the more than 1,400 listed companies are state-controlled firms. China opened another board in Shenzhen in 2004 especially for small and medium-sized firms.

Under the proposed rules, a second-board listing applicant must have two consecutive years of profit record for the latest two financial years and its combined net profits for the latest two years must not be less than 10 million yuan (S$2 million).

Alternatively, the listing candidate must post a net profit for the latest financial year and the net profit must be no less than five million yuan. In addition, its revenue for the latest financial year must not be lower than 50 million yuan and the revenue must show a year-on-year growth of at least 30 per cent over the latest two financial years.

Companies seeking to list on the second board must have a minimum total share capital of 30 million yuan after their initial public offerings.

Calls among domestic financial industry officials for setting up such an exchange have been growing over the past year, as foreign bourses step up their efforts woo Chinese listings.

State media have said China aimed to set up the second board in the first half of this year. Earlier this month, Shenzhen mayor Xu Zongheng said the city was ready to launch the exchange as soon as the central government gives it the go-ahead. -- REUTERS