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SHANGHAI: China is preparing ways to boost the competitiveness of its domestic stock market, including a plan to launch a new type of locally listed shares for Chinese companies, which currently only have an overseas listing.
The authorities are also developing an index for listed companies that have taken part in a government initiative to overhaul their shareholder structures -- a measure that could be used to sideline low quality companies on the mainland stock market.
The ideas reflect the government's fear that domestic capital markets are stagnating, as the better Chinese companies go abroad to raise funds leaving only second-rate companies on the local exchanges, which have performed poorly in recent years.
"There is a real awareness that Shanghai has lost ground to Hong Kong as a financial centre over the last few years, so we need to find new ways to make the local markets more attractive," said a government official.
Officials said the Shanghai Stock Exchange could launch as early as possible a so-called G-share index -- based on the Chinese word "gaige" for reform -- which would be for those companies that have taken part in a government-sponsored plan to make all shares in listed companies tradeable.
Analysts say that up to half of the 1,400 listed companies in China are poorly-managed entities with weak corporate governance that drag on the overall market.
The early drafts of the government's plan included a threat to potentially delist companies that do not eliminate their non-tradeable shares, which are seen as a source of poor corporate governance in China, although the final draft published late last month did not contain any such references.
However, officials hope the G-share index could become the main focus of the domestic stock market, leaving the companies that do not reform their shareholder structure in a neglected second tier. The new type of shares under discussion, which have informally been given the name Chinese Depositary Receipts (CDRs), are based on the concept of American Depositary Receipts, a type of security developed to allow US investors to buy shares in overseas companies without having to deal in overseas capital markets.
The idea, which is being developed by the Shanghai Stock Exchange, is to allow the growing numbers of institutional investors in China, which are prevented from investing abroad, to gain exposure to the top Chinese companies that are only listed overseas.
For example, PetroChina, the largest company in the country, is listed in New York and Hong Kong and China Mobile only in Hong Kong, while 22 Chinese companies are listed on Nasdaq.
The mainland stock markets have been largely closed to new offerings for the past year and even before that companies faced a long process to get their shares traded within China. Through CDRs, their shares could be traded in the mainland without a listing.
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