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Int’l board could give local stocks a run for their money

By Dong Dengxin (Global Times)

08:15, June 06, 2012

China is working on rules and regulations to facilitate the launch of an international board on which stocks of overseas companies can be traded, according to directives released on the official website of the Chinese government Friday.

In terms of performance, China's stock market has been one of the worst in the world over the past few years, with the Shanghai Composite Index losing 22 percent last year and 14 percent in 2010.

Many claim that a lack of capital has dampened China's A-share market, which recently gave authorities impetus to push forward measures to diversify funding sources in the market.

With concerns about limited capital weighing on local investors and listed firms, it's no wonder that the majority of China's market participants have displayed a strong resistance to the planned international board based on worries that an influx of overseas companies would cut into market liquidity and exacerbate the bearish downturn seen recently at mainland bourses.

However, the real plight facing China's stock markets is not a lack of liquidity but a loss of investor confidence in a poorly overseen market, where mismanaged and inefficient companies rush to raise money with little regard for investors' interests.

As the authorities stated in the directives last week, only overseas firms with a strong history of profitability would be welcome to trade on the new board. Allowing world-class overseas firms to list at a domestic exchange would raise the bar for China's listed companies, who would suddenly have to compete with enterprises who have already demonstrated their prowess by succeeding in mature overseas markets. Domestic firms would be forced to improve their operations in order to attract capital away from overseas competitors.

Well-established companies from overseas would likely not lower their standards when entering China's poorly regulated market, or risk their hard-won reputations for the sake of earning quick money from investors. This would adversely affect not only their shares in China's market, but also in other global markets as well.

Over the long run, an international board would help the nation develop its securities market as a whole; yet, in the short term, the positive influence and healthy competitive pressure overseas heavyweights could bring to the market would do much to revive flagging sentiment.

But, while welcoming the benefits overseas firms can bring, the country's regulators should also strengthen their oversight to track how these companies use their funds from the international board in a bid to hedge against speculative activity.


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