"The current foreign exchange administration system does not allow the free trade of renminbi with foreign currency under the capital account, which might make it hard to shift companies' shares to CDRs," said Zhai Qijie, a professor at Nanjing Industry University.

"And the trustee law in China is not mature either."

But China Galaxy Securities' Wang said these obstacles could be overcome if the Chinese government wanted red chips to return.

"They are only technical problems," Wang said. "New mechanisms such as the QFII, QDII , and the A+H models were all fresh to the Chinese capital market, but once they were introduced, investors got to know them It is very possible for the CDR to be issued in 2007."

The massive inflow of money to the A-share market has created great demand for new share issues, heightening the need to introduce the CDR.

The excessive inflow of capital to the stock market is inflating prices in the A-share blue chips. The A shares of companies such as China Life, the Industrial and Commercial Bank of China, and Bank of China, are traded at over 30 percent higher than their H shares .

These significant increases signal an imbalance in supply and demand.

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