Overseas listings should not be seen as obstacles
A groundswell of opposition to the overseas listing of mainland enterprises has hit the floor of the National People's Congress and Chinese People's Political Consultative Conference now under way in Beijing. The outpouring of discontent by mainland scholars and businessmen reflects serious misunderstandings about such listings and the benefits they accrue for the stake-holders concerned.
The resentment appears to spring from a mixture of feelings about economic nationalism and of being deprived of an opportunity to reap the fruits of such listings. The president of Renmin University, Ji Baocheng , is concerned that foreign stakes in the listed companies, many of which are state-owned monopolies of strategic importance, might threaten national economic security.
The fad to list overseas must be stopped, he said, as it was marginalising and hollowing out mainland capital markets by depriving them of good listing candidates. Mr Ji said the 'low' prices at which many of the enterprises were listed was leading to a drain of state assets. By his calculation, assets totalling US$60 billion have been lost. Even before Mr Ji spoke out, there had been simmering discontent on the mainland about the costs and benefits of overseas listings. Many of the listing candidates underwent massive restructuring that involved layoffs and injection of state funds. But mainlanders feel while they bear the crunch of the restructuring, they are barred from sharing the benefits of the listings as they cannot buy overseas stocks.
These views should give cause for concern in Hong Kong. This is not just because the city is the main listing destination of mainland enterprises, but also because it is important for mainlanders to have a proper understanding of the issues concerned.
The central government's policy of encouraging mainland enterprises to list overseas is not simply founded on a need to raise capital. A more strategic goal is to use the exercise as a means of pushing them to operate according to international standards, improve corporate governance and enhance their image. Concerns about national economic security are unfounded, as majority foreign ownership of mainland firms is allowed only in selected industries such as brewing, skin care and supermarkets. Foreign stakes in strategic industries such as banking are capped at just 20 per cent.
The share prices of most mainland enterprises surged after being listed, but there were also instances when they dipped. Underwriters might have made a wrong call at times, but unless they had deliberately misled, no crime was committed. Talk about loss of state assets misses the point that the state remains the listed enterprises' biggest shareholder and therefore the major beneficiary of rising share prices.
Complaints about mainland investors being barred from investing in the national jewels are justified, but the overseas listing policy is not to blame. Beijing should be taken to task for not allowing mainlanders to invest overseas. For example, a proposed scheme to channel mainland funds to Hong Kong and overseas through the so-called qualified domestic institutional investor programme has been mooted for a long time but is still not approved. The moribund status of mainland bourses has more to do with Beijing's suspension of all local listings, pending reforms to the allocation of state-owned shares and their circulation.
At present, 310 mainland enterprises are listed in Hong Kong and overseas, and another 100 are expected to follow suit over the next few years. But such listings are not the obstacles blocking the further development of the mainland's financial markets; their inherent deficiencies, including substandard enforcement of listing rules and trading restrictions, are. These shortfalls can only be plugged by taking concrete measures to open up and embrace best practices, not by stopping firms from going out.