appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

appConfig

filter

json

liveArticle

SCMP Reporter

WHEN China allowed nine mainland enterprises to seek a Hong Kong listing in October 1992, it discovered a muscle waiting to be exercised. Listing abroad infused some much-needed energy into the moribund state section.

  It has also demonstrated China's ability to participate in and contribute to international business.

     More than two years after the first Chinese enterprise was listed abroad, the euphoria has turned to healthy realism.

  Issuers and investors have accepted the reality of China's once-battered economy.

  Realism is evident by the reduced premium of H shares over the broader Hong Kong stock market, lower issuing prices and sluggish subscription response.

  Though China is a potentially big market, it will take time for that potential to be realised.

   However, there will always be a demand for stocks, if offered at the right price.

  China has listed 17 enterprises in Hong Kong and two in the US. Another 19 enterprises, including the so-called third batch, have been slated to have shares issued abroad.

  Although the H-share market is, like other emerging stock markets, subject to fluctuations and investors' expectations, overseas listings have put Chinese enterprises under scrutiny by the public.

   The listing forces the enterprise to align itself with international management practices, accounting standards and information disclosure rules.

  It segregates state ownership from an enterprise's management and makes it accountable to shareholders.

  'It's a breakthrough of China's state-owned enterprise reform and it's so meaningful,' said Ren Fuwei, chairman of Guangzhou Shipyard International, which was among the first of nine Chinese enterprises to be listed in the territory.

  Mr Ren said the company was Guangzhou's first to experiment with the new employment contract system. As a listed company, it underwent substantial changes in its accounting and legal practices.

   'In the past, we did not care anything about contracts because we worked under a planned economy. Now, whenever we enter into any transaction, we have a contract.'   The listing also gives the public confidence in the company because it requires the firm to reveal its operations and results on a regular basis.

   'During the past, we have had few foreign partners. Now we have partners from Japan and the US,' Mr Ren said.

  Kent Chen, manager of Daiwa Institute of Research, said the listing provided the company with a chance to review operations and corporate structure.

  Managers also had to learn how to deal with securities regulators and how to market their shares to foreign investors.

  'It is a valuable experience for companies. It helps them transform into modern enterprises,' he said.

  Mr Chen said there was still room for improvement since firms were exposed to a more open market and increasing costs due to the state's policy of reducing subsidies.

  'The most important thing is that the companies have to be more responsive to market changes,' he said.

   The example of Tsingtao Brewery underlines the difficulties facing newly listed companies. Once a favourite of market analysts because of its well-recognised brand, it eventually lost its appeal due to cut-throat domestic competition.

   It also caused controversy this year when it decided the bulk of its listing proceeds, initially earmarked for expanding production capacity, should be lent as bank loans.

  Analysts say an overseas listing can serve as a way to reform state-owned enterprises.

  But few companies have the opportunity under the China Securities Regulatory Commission, the mainland's securities watchdog.

  Mr Chen said H shares and B shares played a complementary role in the development of China's securities industry.

  Both categories of shares are for foreign investors. H shares are Chinese companies listed in Hong Kong, B shares are those listed in China, while A shares are reserved for mainland investors.

  'For the H-share market, it can cater for companies with larger market capitalisation. The listing expenses, coupled with the ensuing costs of compliance and information disclosure, are relatively higher than a B-share flotation on the mainland,' Mr Chen said.

  He said the B-share market, with its lower costs, would be more appropriate for smaller companies.

  But some analysts believe the B-share market, with its limited scope of functions, is hampered by lax securities regulations in China.

  Jackie Chiu, head of China research for Nomura International, said the prosperity of the B-share market would hinge on the state's priorities for financial reform or the need to raise funds for cash-strapped enterprises.

  'If China's priority is to push forward with financial reforms, the spate of overseas listings by big enterprises will do no good to the development of the domestic stock market.

  'But if China wants to raise money first for the enterprises, they will come to seek a listing in Hong Kong which has a stronger ability of raising funds,' he said.

  Mr Chiu said China hoped to nurture its own major securities market which, in the long term, could dampen interest in the Hong Kong market.

  'If the Shanghai Stock Exchange can develop well in the future, it will affect the attractiveness of H shares listed in Hong Kong.'   But it might take more than 10 years before Shanghai could catch up to Hong Kong.



Listings force firms to align