Shanghai's international board still years away

The latest comments from a securities official indicate a proposed international board in Shanghai won't launch for at least three years or more.

Doug Young

Published: 2:55pm, 14 Mar 2013

Why you can trust SCMP

After writing just last month about the endless delays for Shanghai's long-awaited international board, we're getting new indications of a prolonged wait for the launch of this new stock exchange that would let overseas firms sell their shares to domestic Chinese investors. Anyone hoping for a launch of the board anytime soon will be deeply disappointed to learn the latest signals pointing to a debut in 2015 at the earliest and most likely much later.

This latest dour assessment comes from a Shanghai securities official, who says the necessary laws that would pave the way for the international board were submitted to China's legislature during its current meeting in Beijing. (English article) That particular comment looked quite encouraging, as it seemed to indicate the government would soon take the necessary legislative steps for the launch of an exchange that could allow names like HSBC (0005.HK; London: HSBA) and Standard Chartered (2888.HK; London: STAN) to list A-shares in Shanghai.

But then I read a few paragraphs further into the report, where Ouyang Zehua, head of the securities regulator's Securities Listing Department, said the necessary modifications of existing rules could take another 2-3 years to complete. The report added that the latest word from the China Securities Regulatory Commission (CSRC) is that there is no firm timetable for the launch of the new board.

Frankly speaking, I'm starting to wonder if China really ever intends to launch this international board, as these latest comments seem to indicate securities regulators and Chinese lawmakers are fast losing interest in the concept. The original idea was quite simple, with an aim of allowing foreign companies that did big business in China to list their shares in Shanghai.

Such a plan would have allowed ordinary Chinese to purchase shares in these high-quality global companies, giving them an important new investment option. The plan also would allow big overseas-registered Chinese firms like China Mobile (0941.HK; NYSE: CHL) and Lenovo (0992.HK) to list their shares in China. Such firms incorporated overseas to list their shares in Hong Kong, and thus are technically foreign companies that aren't allowed to list in China.

Beijing has halted most new listings in Shanghai and Shenzhen for months now in an effort to support the country's weak stock markets, which were two of the world's worst performers last year. This kind of IPO freeze is relatively common in China, and was believed to be a major factor behind the delays in the launch of the international board that has been in "finalisation" stages for nearly three years now.

In a sign of growing impatience at the endless delays, Chinese media reported last month that some of the overseas-registered companies originally planning to list on the international board, including China Telecom (0728.HK; NYSE: CHA) and Lenovo, were instead looking at other alternative plans to separately list some of their affiliated units in China. (previous post)

From my perspective, these endless delays seem like a lost opportunity to bring some much-needed improvement to China's stock markets. The addition of big names like HSBC and China Mobile would add a higher degree of standards to the market, forcing Chinese firms to improve their own standards or risk being overtaken by this new competition. But clearly that isn't going to happen anytime soon, meaning Chinese investors will probably have to wait at least three years or more for a chance to purchase shares in these higher-quality foreign and domestic firms.

Bottom line: The latest comments from a securities official indicate a proposed international board in Shanghai won't launch for at least three years or more.

To read more commentaries from Doug Young, visit youngchinabiz.com

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