China Securities Index Co Ltd (CSI), the securities indices provider, said yesterday that it is preparing to launch a new index on the governance of China-listed companies.

The new index, which is expected to be launched at the Shanghai Stock Exchange on January 1, 2008, will list companies according to their corporate governance.

This is the first time for China to introduce a criterion to evaluate corporate governance.

The new index aims to strengthen corporate governance, and will provide mutual fund companies with an underlying index for new products, according to the CSI.

The qualified companies need to have been listed on the Shanghai bourse for 12 months, or listed in other bourses for 12 months and also listed in Shanghai.

The companies must not have violated any regulations in the past three years, had their stock listed as "Special Treatment (ST)", "*ST", or called a listing halt, according to a draft notice from the CSI.

After the application process, the selected companies will be appraised both by the public and industry experts.

Public assessment is expected to begin at the end of next month. Investors can see the companies' information online and vote on it.

Meanwhile, CSI will organize a team consisting of security companies, fund management companies, insurance companies and other assessment institutions to appraise the corporate governance of the selected firms.

At the final stage, CSI will set up a consultative committee of experts to review the methods, process and results of the appraisal, select companies and compile the index before December this year.

CSI said it would revaluate and adjust the constituent stocks in the sector every year.

"Introduction of the index will help the government to better supervise listed companies' management and protect investors' interests," said Zhang Zongxin, a professor at Fudan University.

"Besides, it is expected to be welcomed by institutional investors, including fund and security companies, which favor well-managed companies as an investment target," he added.

"Diversified indices can meet the requirements of specific investors, and the corporate governance index will help investors invest more rationally," said Zhu Haibin, an analyst at Essence Securities.