A little over 10 years ago, Hong Kong opened a new capital-raising window for mainland companies. The new category of H shares came at a time when local punters and institutional investors alike were already enthralled with 'red chips' - companies based in Hong Kong but holding assets on the mainland and still connected to powerful mainland parent companies. H shares were slightly different - being direct listings of mainland-based companies - but they carried much of the same cachet. The first H share, from Tsingtao Brewery, was no less enthusiastically received, trading on the black market for more than 11/2 times its offer price even before it began official trading on the stock exchange.
The 1993 euphoria was followed by a market slump. Another China-share mania in 1997 led to more painful adjustments. Over the years, performance of mainland-related shares on the Hong Kong market has ranged from good to lacklustre to extremely volatile. And some have been mired in controversy, with Shenyang tycoon Yang Bin's Euro-Asia Agricultural Holdings being one of the more recent examples. As Hong Kong's officials attend a conference in Beijing to mark the H share's 10th anniversary and to court future mainland listings business, this is a fitting moment to note that Hong Kong has helped mainland companies raise a remarkable amount of working capital - at least 800 billion by one official estimate. It is also fitting to look back at the pitfalls of courting this business.
Other news from this year, such as the case of Bank of China (Hong Kong) and its lending to Hong Kong-listed Shanghai Land, show that transparency is still an issue. Smaller, less liquid stocks are open to manipulation, while uneven standards of corporate governance mean that investors cannot have blanket confidence in the mainland companies listed here.
For now, Hong Kong is still a top choice for mainland companies seeking exposure to international investors. The recent listing of PICC Property & Casualty and the upcoming offerings for China Resources Power seem to be just the beginning of the next big wave. Singapore and Taiwan both want a slice of the listing business, but Hong Kong's proximity and experience still win the day. This competitive edge would be enhanced - and investor confidence boosted - if Hong Kong applied the lessons of the past decade through tighter market regulation. Indeed, the New York market is often in contention for the biggest mainland deals, despite its tougher listing rules.
The China-share business can be beneficial for both sides, provided the listed companies have the wherewithal to remain going concerns long after the initial offering. High-profile flops can do untold damage, to investors, companies and the exchange's reputation. Let's have more mainland listings, but not at any cost.