Exclusive: China considers new bourse to attract overseas-listed firms - sources

HONG KONG (Reuters) - China is considering establishing a stock exchange to attract overseas-listed firms and bolster the global status of its onshore share markets, two people with knowledge of the matter told Reuters.

FILE PHOTO: A Chinese national flag flutters near the building of China Securities Regulatory Commission (CSRC) at the Financial Street area in Beijing, China July 16, 2020. REUTERS/Tingshu Wang/File photo

The country’s State Council has asked the top securities regulator to lead studies on how to design the exchange that would target Chinese firms listed in offshore markets such as Hong Kong and the United States, said the people.

The government hopes the initiative would also lure marquee global firms such as Apple Inc and Tesla Inc, which would have the option of carving out local businesses and listing them on the new bourse, one of the people said.

The plan comes as Beijing and Washington remain locked in a rivalry that has featured moves by the U.S. securities regulator toward expelling Chinese companies from U.S. exchanges if they do not comply with U.S. auditing standards.

About 13 U.S.-listed Chinese firms including Alibaba Group Holding Ltd, Baidu Inc and Inc have conducted secondary listings worth a combined $36 billion in Hong Kong over the past 16 months, Refinitiv data showed.

With Sino-U.S. relations showing little sign of easing, bankers and investors expect more such “homecoming” offerings.

Shares in Hong Kong Exchanges and Clearing (HKEX), which has benefited from a slew of secondary listings by New York-listed Chinese companies, gave up gains and slipped into the red after the Reuters report.

The stock, which was up 0.7% before the news, dropped as much as 1.9% in afternoon trade before ending down 1.3%.

Talks for the new exchange are in early stages and a time frame and location are yet to be decided, said the people, who declined to be identified as the discussions are confidential.

The China Securities Regulatory Commission did not respond to a Reuters’ request for comment.

China has two main onshore exchanges, in Shanghai and Shenzhen, with combined listed market capitalisation of 78.7 trillion yuan ($12 trillion).

In the first quarter, Nasdaq and New York Exchange topped the global bourses league table in terms of IPO proceeds, while Shenzhen’s tech-focussed ChiNext board and Shanghai’s main board were ranked 8th and 10th, respectively, according to Refinitiv data.

The same rules govern initial public offerings as well as non-initial listings, in contrast to some other leading bourses, such as Hong Kong’s, which offer waivers for secondary listings.

One option under discussion is upgrading an existing listing platform such as a smaller bourse in Beijing, said the people.

Beijing’s municipal government has been lobbying for years to upgrade its equity exchange for small and mid-sized firms, known as the “New Third Board”, to be home to U.S.-listed Chinese firms, said one of the people and three other sources.

The securities regulator and a few government bodies have for about six month been studying the feasibility of such an upgrade, for which there is a “50-50” chance of adoption, said one of the three sources.

In a meeting with regulators and institutions in February, Cai Qi, head of Beijing city’s Communist Party, called for the capital to lead financial reform and develop a modern financial industry, the official Beijing Daily reported.

The Beijing government’s media office did not respond to Reuters’ requests for comment.

It is rare for foreign companies to raise funds through China’s equity markets partly due to the country’s strict control of foreign exchange.

Moreover, government attempts to open up its stock markets to foreign firms and investors via stock connect projects including the London-Shanghai Stock Connect have struggled to take off against a backdrop of geopolitical challenges.

China launched a trial program in 2018 to lure overseas-listed technology companies back home with Chinese depositary receipts, or CDRs. That effort has also struggled for success with most such firms opting for secondary listings in Hong Kong.

“The biggest question is whether the new exchange can be attractive enough,” said one of the people. “Otherwise, it might just turn out to be another madcap scheme.”

($1 = 6.5623 Chinese yuan)

Reporting by Hong Kong Newsroom, Zhang Yan and Julie Zhu; Editing by Sumeet Chatterjee and Christopher Cushing