China May Allow Foreign Companies to List in Shanghai this Year

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By Vivian Ni

Jun. 9 – While China’s plan to launch an “international board” – a separate board on the Shanghai Stock Exchange that will allow overseas companies to float shares in the A-share market – has emerged as a hot issue since 2009, there has never been a clear timeline showing how this historic development will proceed. Recently, however, Deputy Director of the Economic System Reform Department of the National Development & Reform Commission Lian Qihua announced for the first time the new board may make its debut before the end of this year. Now, international securities and companies seem to have more confidence in the approaching event and are showing a strong interest in seizing the potential opportunities it will bring.

The international board is designed to allow the listings of multinational corporations (MNCs) – mostly Fortune 500 companies – in China’s domestic stock market, and attract the return of red chip companies, which have business in the mainland but are listed overseas – mainly on the Hong Kong Stock Exchange. Qualified companies can choose to either launch initial public offerings or issue stocks in the form of China Depositary Receipts.

While it remains unknown how many will be included in the first bulk of companies to be listed, one thing for sure is that MNCs are highly interested in the opportunity to raise capital from Chinese investors. So far, the big names that have expressed an interest in heading for the international board include HSBC, the New York Stock Exchange, Volkswagen, Mercedes Benz, Coca Cola, Siemens, Bank of East Asia, DBS Bank Limited, China Mobile, Lenovo, China National Offshore Oil Corp., China Telecom and China Overseas Land & Investment Ltd..

By looking at how many international companies are rushing to be listed on the Hong Kong Stock Exchange and how many are seeking more access to cash-flowing Mainland China, one can easily understand the significance of the international board launch timing. The arrival of an internationalized stock market open to global participation will become a landmark in China’s capital raising development and reinforce Shanghai’s position as a global financial hub.

However, the domestic A-share market did not react happily to the news of the coming international board, just like it didn’t take well to other reforms in the country’s stock market over the past few years. The Shanghai index dropped by around 3 percent on May 20, the same day when the China Securities Regulatory Commission Chairman Shang Fulin emphasized to the public that the international board launch is not very far away.

The unpleasant performance of the A-share market tells that investors are not without concerns. Among various fears, one of them is that the new board – only allowing issuance of shares denominated in the Chinese yuan – will divert funds from domestic stocks and set back the capital raising prospect of Chinese listed companies. There are even people referring to the international board as a huge ATM for MNCs, worrying that China, without so much experience in financial openness, will see a sizable cash outflow.

One recent commentary by Gan Jian on the Chinese business paper CBN uttered an optimistic voice, saying a sizable fund decline in the domestic share market is not likely to appear because the fund flow to the international board will be insignificant, if it is from a market with capitalization of up to RMB20 trillion.

Other financial experts also disagree with the “ATM” reference. They believe the international board will not cause a large cash outflow from the market where the RMB exchange is not fully liberalized. Compared to absorbing massive capital, the new board will function more like a trigger that accelerates a complete set of market-oriented reforms in China’s financial market.

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