BEIJING, Feb. 6 -- Chinese mainland stock markets may rally this year even as many investors remain jittery about lax corporate governance and policy uncertainties, key analysts told Shanghai Daily.

    Market watchers are optimistic that completion of the government's plan to transform state-held equity into publicly traded shares and other reform efforts will generate new interest in yuan-denominated stock.

    Indeed, the mainland's main stock indexes have gained more than 10 percent since the year's start after losing half their value since their 2001 heyday.

    "After a five-year plunge, we'll finally wriggle out of the pattern this year," said Li Zhi, a Hualin Securities Co analyst. "Funds are expected to flow into the market as the result of expectation that the stock shakeup will create a better investment scenario."

    China's mainland in May rekindled a twice-scrapped project to move as much as US$250 billion in mostly state-held equity onto the Shanghai and Shenzhen bourses, hoping to plug a shortfall in pension obligations. In the meantime, all initial public offerings were halted to prevent a stock glut.

    The transformation, which could be wrapped up before the end of this year, initially sparked panic selling, dropping indexes to eight-year lows. But the selloff abated as large institutional investors held their positions.

    "With the indexes edging up, retail investors will gradually return to trading," said Li. "Institutions such as insurers, pensions and overseas banks will restore interest in the markets, partly thanks to low pricing and the country's economic boom."

    Chinese mainland's economy expanded 9.9 percent in 2005 and is forecast to grow at least 9 percent this year, boosting household incomes and consumer spending, developments that could lift share prices of retailers and financial institutions, analysts said.