TAIPEI, Taiwan (TheStreet) -- Chinese officials have approved opening a new board to trade stocks of fast-growing and innovative companies, a move to make the most of high share prices but not necessarily one that helps offshore investors.

The central government's State Council announced this month its support for opening a "strategic emerging industries board" on the Shanghai Stock Exchange, the official Xinhua News Agency reported. Such high-level approval often means that followup action is just a matter of time.

As proposed in March, the board would allow listings by companies with a certain scale, not just startups, and mimic the ChiNext index in the southern city Shenzhen where shares have traded at worrisome valuations of more than 100 times earnings earlier this month.

The Shanghai board-to-be would advance China's goal of fostering private enterprise instead of the $10 trillion economy's traditional mainstay of state-owned companies. In another sign of that support, regulators have opened the gates to initial public offerings this year, with 23 on the books for June alone.

"Emphasis this year is to shift enterprise funding from the shadow banking system to the more regulated financial system, so corporate bonds and equities, and the new board seems consistent with that kind of macro theme," said Tim Condon, head of Asia research at ING Financial Markets in Singapore.

With existing Chinese markets reaching record highs this year, regulators may figure now is the time to start another board. "There is an element of opportunism there, why not strike when the iron is hot?" Condon said.

But investors, particularly retailers from offshore, would face a list of risks.

High valuations and the threat of a bubble market reflected by this month's Chinese "A" share decline are expected to extend quickly to the new board. IPOs also divert liquidity away from the broad market, limiting access to shares that are already restricted to 271 foreign institutions with investment quotas from the Chinese government.

The new board would add Chinese ADRs in the United States and give more options to U.S.-listed funds that trade or track shares in emerging Chinese companies, giving American investors a shot

It's too early to tell which foreign firms might pick stocks on a board not yet created, but those with other "A" share funds would be in a prime position.

CSOP Asset Management of Hong Kong, for example, launched the CSOP FTSE China A50 Exchange-Traded Fund (AFTY) in March to follow the Shenzhen market. UBS (UBS), a Swiss financial group with 20% of China's total quota for foreign currency investments, would also have the means to test a new board. Fidelity Investment Management (Hong Kong) got a quota boost earlier in the year, a potential boost to the Fidelity China Region Fund (FHKCX).

Chinese companies have long been criticized for lack of transparency, and a new board would be full of no-names from the perspective of foreign investors, dangerously elevating uncertainty for all but the most inveterate China stock pickers. 

Documentation would be in Chinese, and listing requirements may be looser than those of the bigger "A" share boards such as the Shanghai Composite Index.

"When you're doing investment outside a home market, you tend to stick with big-name companies -- global small-cap investing is a hard thing to get right," said Michael McGaughy, head of research at Yuan Asset Management in Hong Kong. "Those secondary boards appeal to people who know that country really well or an industry really well."

This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.

More from Emerging Markets

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

Wall Street Looks To Extends Gains After Goldman Earnings Beat, China Data

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

China's President Xi Jinping Tells Boao Forum He Supports Opening Markets

U.S. Stock Futures Steady; Asia Stocks Mostly Lower

U.S. Stock Futures Steady; Asia Stocks Mostly Lower

Jim Cramer: There Are Plenty of Shorts in Constellation Brands

Jim Cramer: There Are Plenty of Shorts in Constellation Brands

Renault Shares Hit 10-Year High on Nissan Merger Report

Renault Shares Hit 10-Year High on Nissan Merger Report