Foreign companies to soon list on China's stock market

China is keen on inviting foreign companies to the country's financial market by going public on China's stock market. However, experts warn that prudence should prevail in designing the rules for what is known as the "international board" of China's stock market.

The People's Bank of China, China's central bank, committed in its review of the 2010 international financial market to encouraging more overseas investors to participate in trading in China's financial market. It goes on to further suggest that institutional arrangements be made for the international board.

China's Banking Regulatory Commission also confirmed recently that making "technical foundations" for the international board is one of its priorities set for 2011.

Rules of the international board have been basically drafted and consensus on information disclosure and market supervision has been reached between relevant government agencies, according to the Overseas Edition of People's Daily on Monday.

Market insiders welcomed the prospect of having foreign investors as China-listed companies. Yuan Dejun, an executive at Galaxy Securities, one of China's biggest securities broker, believes the move reflects the growth of China's capital market and will improve the topology of China's capital market.

He Qiang, a scholar at China Central University of Finance and Economics, and Li Jiange, chairman of China International Capital Corp. (CICC), China's first joint venture investment bank, both agreed that the time is ripe this year to launch the international board, which can bring China's economy and financial market even closer to the world system.

Foreign investors have already shown interests in being a part of China's capital market. HSBC, for example, has expressed its intent to become the first to float on China’s stock market.

However, there is concern about the risks of the proposed international board given the distortion on China's capital market currently. Hua Sheng, president of Beijing-based Yanjing Overseas Chinese University, said the excessive expansion of the stock market and the lack of attention to the bond market in China would not be the best choice.

In addition, on a stock market where speculation is rampant but dividends returns are sidelined, it is very likely that an international board could be turned into a predatory capital siphoning game for international players.

To avoid that, Yuan stressed that the stability, capacity and the supervision effectiveness have all to be taken into account in the consideration of the quantity of introducing foreign companies and the pace of launching the international board. A progressive process is necessary.

Yuan also pointed out that both the experience of developed markets and China's real situation would have to be factored in when the rules for the operation and supervision of the international board are designed.

When the countdown of the international board has begun, it is particularly important to follow the principle of prudence in the whole arrangement, He said.

By Li Jia, People's Daily Online

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