REPORTS that some foreign companies are preparing to list in China are worth looking at, regardless of their authenticity. The news, if it is more than rumours, indicates foreign enterprises' interest in the mainland securities market. The reports also suggest that the listing of foreign enterprises on mainland exchanges should come sooner or later, as these rumours do not spread by themselves. Such a move will benefit the country's economic development and reforms in three ways. First, it shows that China's securities markets, either Shanghai or Shenzhen, are becoming highly regarded internationally. Such a move would put China closer to its ambition of becoming an international financial centre. And to get more in line with international practice, the mainland securities markets are expected to improve operations as they prepare to list foreign companies. Second, the news has reflected the success of China's economic development, which is attracting huge interest from foreign companies. Foreign interest in China is shown in the willingness to make investment in the country, or to buy B shares and H shares issued by Chinese enterprises. The listing of foreign enterprises in China could be seen as an indicator of the liquidity of the mainland securities markets and the level at which investors (including foreign investors) are regarded. Third, such listings will benefit China in that some listed foreign companies may make China their regional base. Of course, an immediate effects of foreign companies listing in China will be expansion of their mainland activity. However, such listings are likely to give rise to several problems if not properly handled. These include: Listing foreign companies in China could become a drain on the country's already limited source of funds. Such a situation would surely be unfavourable to the mainland economy. Listings of foreign companies could lead to a fluctuating stock markets, with an increase in supply of shares, leading to a fall in the index. If money raised from China's stock markets by foreign companies is not invested in China, the economy will be hard hit. If money raised from China's markets is invested in China, it could give rise to another problem - inflation. This rests on the assumption that the rash of investments in China will lead to an imbalance in supply and demand for goods. It would seem these problems cannot be avoided, but blocking foreign companies' moves to list on the exchanges equally would not be a smart idea. While welcoming foreign companies to list in China, suitable measures should be adopted, including: All foreign companies applying to list in China should be approved by China's securities watchdog. Requirements and procedures for listing such companies should be the same as mainland companies seeking listings. An examination should be carried out on how foreign companies will use proceeds from the flotation. To avoid damage to the mainland stock market and to mainland companies, listing foreign companies in China should not be concentrated on any one exchange or at any one time. 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.