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News Analysis: Hong Kong Plays Vital Role in Raising Funds for Mainland
Hong Kong-listed state-owned enterprises (SOEs) and mainland-funded corporations are playing an increasingly important role in the stock market of Hong Kong, with their market capitalization surpassing a quarter of the bourse total, helping Hong Kong become a financial center for raising capital for the mainland.
To date, some 122 SOEs and mainland-funded corporations have been listed in the main board and the Growth Enterprise Market of the Stock Exchange of Hong Kong, including 54 SOEs and 68 mainland-funded corporations.
Latest statistics from the Hong Kong Exchanges and Clearing Limited (HKEx) indicate that the Hong Kong stock market had raised 638.2 billion HK dollars (81.8 billion US dollars) for the Hong Kong-listed SOEs and mainland-fund corporations by the end of May this year, and that their market capitalization reached 1346 billion HK dollars (172.5 billion US dollars), accounting for 29.5 percent of Hong Kong's total.
Laura M. Cha, vice-chairman of the China Securities Regulatory Commission (CSRC), said the listing of the first SOE, Tsingtao Brewery, in the Stock Exchange of Hong Kong in 1993 is one of the most unforgetable event in her ten-year service in the Securities and Futures Commission (SFC) of Hong Kong.
It opened a new channel for raising funds for the SOEs and signified a milestone for the Hong Kong stock market, she said, noting that the vital role of the mainland-related corporations in the capital market of Hong Kong today was out of people's expectation seven years ago.
SOEs listed in the Stock Exchange of Hong Kong is known as H shares. Mainland-funded corporations registered and listed in Hong Kong are referred to as red chips, which maintain close ties with mainland in running business.
Since the return of Hong Kong to its motherland in 1997, several major red chip corporations, including China Mobile, Shanghai Industrial Holdings, Legend Holdings and China Unicom, have become the constituents of the Hang Seng Index and have been playing a more and more significant role in the stock market.
Lawrence Fok, deputy chief operating officer of the HKEx, told Xinhua that proposition of the listing of SOEs in Hong Kong dated back to the early 1990s, and the purpose is first of all to raise funds, and at the same time to transform the SOEs into internationally standardized modern enterprises through going public in a stock market with a large number of international institutional investors.
Recalling the history of H shares and red chips in the Hong Kong stock market, Fok said the year 1997 is regarded the gold year for them. A group of red chip giants, such as China Telecom (now China Mobile) and Beijing Enterprises Holdings, attracted a large number of
investors.
Fok said the listing of the H shares and red chips brings positive impact on the restructuring of these enterprises, and will increase their competitive edge in the long run, particularly after China's accession to the World Trade Organization.
On the other hand, he said, the H shares and red chips represent a bigger variety of the Hong Kong stock market, which had no heavy industry companies.
As many of the SOEs listed in Hong Kong are engaged in the petroleum and coal mine industry, these enterprises have offered more choices for investors, but also consolidated Hong Kong's status as an international financial center, Fok said.
Among the SOEs-listing overseas markets, Hong Kong contributes 84 percent of the total funds that SOEs have raised overseas, including the United States and Singapore, and Hong Kong has also the largest liquidity of shares of the SOEs and mainland-funded enterprises listed overseas.
The listing of the SOEs and mainland-funded enterprises in HongKong has helped the expansion of the capital market of Hong Kong.
The ratio between the market capitalization and GDP indicates that Hong Kong, with a 354 percent market capitalization/GDP in April 2001, tops all international financial centers and Hong Kong has developed into a fairly mature market in terms of supporting the capital needs of Hong Kong listed-enterprises and the economic development of Hong Kong.
Market observers point out that the biggest potential of Hong Kong lies in continuing developing as an international capital formation and financial center for the mainland.
As a free market, Hong Kong sets no limits in raising funds and there are no restrictions for companies to go public in Hong Kong in terms of the quota, amount of IPO, P/E ratio and trade, Fok said, adding that any company meeting the listing rule can come to Hong Kong.
He said Hong Kong has no foreign exchange control, and the capital raised by the listed Hong Kong is free to flow into and out of Hong Kong, and moreover the pegged exchange rate of the Hong Kong dollars also helps to lower the risk of foreign exchange rate for overseas investors.
Fok pointed out that Hong Kong is the first region with the U.S. dollar clearing system out of the United States and the mainland companies are able to enjoy the convenience of the U.S. dollars clearing system in Hong Kong.
In referring to the cooperation with the relevant authorities in the mainland, Fok said a memorandum for cooperation was signed in 1993 by the CSRC, the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the Hong Kong SFC and the Stock Exchange of Hong Kong, and meeting would be held at the regular intervals every year.
Recently, the HKEx signed a memorandum with Shanghai and Shenzhen stock exchanges to exchange market information and data of listed companies, to provider an efficient channel for investors for market information.
Fok said the capital market in the mainland and Hong Kong offers different services, but the fundamental role is to raise fund for listed enterprises, some of which need renminbi for domestic expansion, but others need foreign currencies for international marketing.
He believes that with the rapid expansion of the economy in the mainland, Hong Kong is sure to play a more and more important role in raising international capital for the mainland.
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