IN a bid to activate the sluggish B share market it has been suggested that mainland firms which have issued B shares seek secondary listings. One plan among the many choices available is to allow the companies to seek secondary listings on the Hong Kong stock exchange. While the proposed secondary listings will enable overseas investors in mainland firms to buy and sell B shares in the territory, they have given rise to several questions. These centre on whether cross-listings by Shanghai and Shenzhen counters of A and B shares can be made possible, and whether A shares in Shanghai and Shenzhen can seek secondary listing overseas. But companies first need to improve their management to attract investors. They can do this by regularly presenting financial information, such as balance sheets and results reports, to foreign investors. Mainland B share companies seeking secondary listings will provide foreign investors with more investment opportunities. The proposal is therefore advantageous to both the companies involved and investors abroad. But mainland firms issuing B shares must improve their administration and management. And they must ensure that the information they present is accurate and complete. There are other problems with cross-listings. Although investors in Shanghai can buy and sell stocks on the Shenzhen exchange, the two markets are different. So the markets are looking for a closer understanding and relationship. They want to fully understand each other's processes of management and operation, even though the two markets will remain independent. Such a link-up will enhance the two exchanges' development, accelerate the growth of companies and strengthen the public's knowledge of listed companies. But the exchanges' short history, their insufficient management experience and their different regulations mean that plans are long term rather than short term. And because plans are long term, clauses relating to secondary listings have not been included in the draft of the securities law. Allowing A shares to list overseas is a difficult task, but will be easier when the yuan becomes a freely convertible currency. When this happens, the distinction between A and B shares will be abolished and companies with secondary listings overseas will not have to divide the listings into A and B shares. But the time is not right. Many A-share companies seeking secondary listing overseas would put pressure on the yuan, and dealings would be at a black market price. Share prices would then fluctuate with the black market exchange rate of the yuan. This would damage the development of mainland firms, and the financial stability of the markets. The priority for mainland firms is to achieve a good B share listing overseas. Following this will be cross-listings by A and B shares between the two mainland exchanges. But, the most difficult to achieve will be A-share companies seeking secondary listings overseas. And only when the yuan is freely convertible will the problem have an easy solution. Professor Li Yining is head of Beijing University's department of economics and management and is a standing committee member of the National People's Congress.
