New Calls for Shanghai International Stock Exchange

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Oct. 15 – Amid the somewhat embarrassing lack of interest shown by international investors in the Shanghai Free Trade Zone, renewed calls for an international stock exchange to be based in the zone have become louder.

The Shanghai Stock Exchange (SSE) has, in fact, applied for a branch license to operate in the zone and this has been approved by the China Securities Regulatory Commission. The SSE has been seeking approval to trade in international stocks since 2009.

“Holding shares of top American companies such as Boeing and Microsoft is better than holding United States treasuries,” Lawrence Lau, Chairman of CIC International in Hong Kong (part of China’s Sovereign Wealth Fund) said yesterday. “An international board would be a big help to Shanghai if the world’s best companies are tradable in the city.”

A Shanghai board would also allow foreign companies to raise money for expansion into China from local sources, rather than continuing to either re-invest profits or call in additional investment from overseas. To date, the idea of an international stock exchange has not materialized because the Chinese regulatory authorities have been wary of investors dumping Chinese stocks and buying exclusively into foreign companies. Such a move is considered likely to trigger a dramatic slide in the value of China’s domestic companies, many of them SOEs.

“Both the lack of an international board and the current suspension of IPOs in China are causing problems for China’s capital markets development,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “Maybe we’ll see some pointers as to future direction at the CCP’s Third Plenum in November, when strategic decisions of this type tend to be made.”

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia.

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