CHINA is stepping in the right direction by approving more state-owned enterprises to issue shares on overseas capital markets in a bid to prevent the outflow of state assets through back-door listings. But a statement by Wang Jiangxi, head of the China Securities Regulatory Commission (CSRC), yesterday that it was not appropriate to list good enterprises on overseas markets is worrying. Although the Chinese authorities seem to be prepared to allow state-owned companies to seek listings overseas, they are, at the same time, not prepared to allow that to happen freely on the grounds that they want the domestic stock market to develop. They have stated that they will not allow property and commercial enterprises to be considered, but will next consider allowing only larger primary industries to raise capital from the US market. This move by the Chinese authorities to curb back-door listings comes about because there have been several cases of such listings in Hong Kong since last year. An example is Shougang Corp, which bought Tung Wing Steel last year and acquired more companies later. To date, more than 10 companies are thought to have listed in Hong Kong through the back door. Aside from the enterprises approved for Hong Kong listing, there are many firms in China still trying to raise capital. Since the authorities have not banned back-door listings outright, this practice may continue. But even if they are banned, enterprises are likely to devise other innovative ways to raise capital.
