THE vision of Hongkong as the Manhattan of China came a step closer yesterday with the signing of the Memorandum of Regulatory Co-operation (MORC). Hongkong stock exchange officials are justifiably proud at being able to strike agreement with their mainland counterparts. The accord on investor protection and supervisory duties clears the way for the first nine authorised mainland firms to list in the territory, combining China's industrial muscle with Hongkong's financial savvy. When the negotiators set out on the great adventure 13 months ago they not only had to find common ground between the various regulatory authorities but also to write the rule book on the standards that listed China firms should aspire to. The memorandum takes a pragmatic approach to the difficulties of disclosure and communication. Mainland firms have to station two representatives in the territory as a point of contact for investors, and appoint sponsors for a minimum of three years; the suggestion being that sponsors will not only explain the international rules to mainland directors, but also help keep them honest. In some respects, the proposed rules go further than Hongkong's own regulations; the stipulation that two non-executive directors be appointed, for instance. As to the prospects for the initial listings, although there will be opportunities to stage the issues on early euphoria, it will pay long-term investors to be selective. Most investors will hardly spare a glance for the front page warning on the prospectus, though institutional investors will pay great attention to any accounting caveats inside. There seem to be three clear areas of risk. The first is currency depreciation. It is the same risk investors face whenever they buy into a firm listed on any foreign market outside of the United States. It is a risk that will be on shareholders' minds because of the recent rapid depreciation of the swap centre rate for the yuan. The second risk is cash calls. Most of the new listings are large industrial concerns that will be hungry for cash to update their plant. Would investors be keen to plough cash into heavy industry in Eastern Europe, for example? Yet future mainland listings may be in similar shape. The third is a question mark over the commitment to the needs of minority shareholders. These are still government-run companies and if a conflict arose between the needs of the State and the needs of minorities, the State may well come first. In that case, would it be possible to enforce the MORC? What must be remembered is that although the MORC has been signed there is plenty of work still to be done in policing it. Without wishing to appear like the ghost at the wedding banquet, it has to be stated that it is the enforcement of the rules that is the real test.