China B shares get green light from Japanese

JAPAN has begun allowing retail investors to buy foreigners-only shares issued by companies listed in China, paving the way for the eventual listing of some mainland enterprises on Japanese exchanges.

After giving the approval for Shanghai B share deals, Japan is expected to allow retail investment in the Shenzhen exchange within the next few months.

Hong Kong-based Japanese fund managers said the move would make it easier for some Chinese companies to list in either Tokyo or Osaka in the future.

So far, because of its strict regulatory rules and the high cost, none of the two batches of mainland companies approved for overseas listing has opted for a listing in Japan.

''By designating them as foreign stock markets suitable for retail investment, the Japanese authorities are thinking of allowing some Chinese companies to list in Japan in future,'' said Masaharu Amagi, managing director of Dai-ichi Securities Pacific.

At present, only certain foreign companies are allowed to have a secondary listing on the ''foreign section'' of the Tokyo and Osaka exchanges.


Mainland exchanges hope Tokyo's move will help lift the B share markets out of the doldrums but Japanese fund managers do not think this will happen immediately.

''It's true there is a great deal of interest in B shares. But, at this moment, the interest is not yet fully translated into buying orders,'' said Koto Junichi, head of Nomura's China division.

Mr Amagi believed that Tokyo was looking at the long-term potential of the Chinese market when it decided to allow B share investment in the Shanghai and Shenzhen markets.

''I think the Chinese authorities hope the move will help activate the B share market. But I personally do not think a lot of money will flow into the market right now although the potential is great,'' he said.


Last week, based on the recommendation of the Japan Securities Dealers Association, Tokyo gave its permission to retail investors to put money in the Shanghai B share market.

The association will have to recommend to the Japanese Government to designate the Shenzhen stock market as an ''appointed foreign securities market'' before retail investors are allowed to buy and sell B shares.


Also, as a designated market, Shenzhen-listed companies may launch fund-raising exercises in Japan.

Japanese securities laws and regulations only allow retail investors to invest in designated stock markets abroad although the restriction does not apply to institutional investors.

Since 1977, Tokyo has designated 35 overseas stock markets for retail investors, including the New York, London, Amsterdam and Hong Kong exchanges. Some counters of these markets are also listed in Tokyo or Osaka.


Japanese fund managers said until the mainland markets tightened their regulatory framework, it was unlikely that many Japanese investors would put money in their stocks.

The head of China business at another Japanese securities firm said rigorous enforcement of the securities regulations was another condition for a significant number of foreign investors to move into the markets.

''The concerns of Japanese fund managers are valid, considering that even their own watchdog chief is not very happy with some of the listed companies,'' he added.


China is finalising details of a securities law, which will set out clearly the listing, management and disclosure obligations of listed companies and the penalties for failing to do so. The law is expected to be published in June.

Listed companies now are guided by interim national regulations and the rules of the exchange.

Last week, Liu Hongru, head of the China Securities Regulatory Commission, said there was a tendency among listed companies to circumvent disclosure rules and new securities regulations.