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A leading Chinese government official has said that state-owned companies will benefit more from listing first on overseas stock markets such as Hong Kong rather than on the mainland exchanges in Shanghai and Shenzhen.
Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (Sasac), which manages the state's corporate assets, defended last Thursday the policy of floating large companies overseas, saying that international exchanges had more rigorous corporate governance standards, which would improve the performance of state-owned groups.
His comments underline the way Hong Kong is cementing its position as the preferred equity market for leading Chinese companies, at the expense of Shanghai, despite strong opposition from mainland investors and some politicians to Sasac's listing strategy.
"The overseas markets are more regulated and Chinese companies can benefit and learn to fine-tune corporate structure and governance," he said at a press conference in Beijing. The domestic market would benefit because companies would be in stronger shape if they later listed on the mainland.
China's mainland exchanges have been virtually closed to new initial public offerings (IPOs) since mid-2004 due to the continued drop in share prices and a government reform of the shareholder structure of listed companies, aimed at making all shares tradable on stock exchanges.
Around 60 per cent of shares, are currently non-tradable, which officials believe is one cause of poor corporate governance levels on mainland markets.
"For the past five years the domestic A-share market has been a disaster because it has fallen every year and because it played virtually no role in corporate finance," said Jonathan Anderson, China economist at UBS.
State-owned companies such as China Construction Bank and Shenhua Energy have floated on the Hong Kong market this year despite the ban on domestic IPOs. However, this has prompted strong criticism from mainland investors who have not only seen the value of their holdings fall -- the main Shanghai index is at around half its 2001 high -- but are unable to buy the shares of many leading Chinese companies.
In response, the Shanghai Stock Exchange has investigated the launch of so-called China Depository Receipts, which would allow mainland investors to buy shares of companies listed overseas without the need for them to also be listed in Shanghai or Shenzhen.
China National Coal Group, the country's leading, coal exporter, is likely to list in 2006, Mr Li said. He also said that two large state owned grain trading companies -- China National Cereals, Oils and Foodstuffs (Cofco) and China Grains & Oils Group -- were in merger talks.
The combined profits of the 169 companies supervised by Sasac rose 25 per cent to Rmb565bn ($70bn) in the first 11 months of the year, the agency said, and the return on assets rose 0.5 percentage, points to 7.3 per cent, despite fears of a profit scrunch due to over capacity. (FT Syndication Service)
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