China approves OTC market in Tianjin -Xinhua

BEIJING, March 19 (Reuters) - The northern Chinese port city of Tianjin has won approval to set up the country's first national over-the-counter (OTC) stock exchange, part of financial and other reforms it is piloting, state media said on Wednesday.

China is trying to transform the so-called Tianjin Binhai New Area into a test-bed for reforms in finance, land use and other areas, much as it has done before in places like Shanghai's Pudong.

A proposal on the reforms submitted by local authorities to the State Council, or cabinet, in 2006 has now been approved, and it includes the establishment of an OTC exchange, the official Xinhua news agency cited unnamed local officials as saying.

"In the approved plan, one of most important measures regarding financial innovation is the establishment of the OTC market," Xinhua paraphrased the officials as saying.

It did not elaborate on the other components of the plan for reform. When Binhai was first designated as a special zone for conducting market reforms, one of the ideas floated was that it would also experiment with liberalised foreign exchange rules.

The creation of an OTC market would allow non-listed companies to transfer or trade shares under the supervision of the securities regulator, expanding the fund-raising options for smaller firms.

China currently has two stock exchanges, in Shanghai and the southern boomtown of Shenzhen, which borders Hong Kong.

The government is also expected to soon give the go-ahead to a proposed Nasdaq-style second board for startup firms in Shenzhen. (Reporting by Jason Subler)