An opinion piece published by the state-owned Xinhua News Agency says that Chinese depository receipts will accelerate the maturation of China’s capital market, and drive the return of the country’s best “new economy” enterprises that are currently listed abroad.
The publication of the opinion piece comes just after the deputy head of the China Securities Regulatory Commission confirmed that Chinese depository receipts (CDR) are on track for launch in the near future.
According to the Xinhua opinion piece entitled “CDR Are Expected to Drive the Accelerated Evolution of China’s Capital Markets towards Maturity” (CDR有望推动中国资本市场加速向成熟嬗变”, the introduction of the instruments will “play an expediting role for Chinese investors, listed enterprises, the Chinese stock market, and even the Chinese economy.”
“In relation to this, Baidu, Tencent, JD.com and other Chinese enterprises in the new economy that are listed in the US have all expressed interest and willingness to return to China’s A-share market.”
CDR’s are certificates issued by Chinese banks that are traded on local exchanges, and serve to represent a pool of foreign equity.
The instruments provides institutional and retail investors in China with a channel for acquiring equity stakes in companies listed overseas, as well as overseas-listed Chinese companies with a means for returning to domestic equity markets.
Zhang Jun (张俊), Head of China Research at Rosenblatt Securities, said to Xinhua that while a cohort of outstanding new economy enterprises had emerged in China over recent years, including major Internet companies, the majority of them had all listed overseas.
“Once outstanding Chinese tech companies use CDR’s to return to the A-share market, this will have important symbolic significance, and signal closer integration between the growth of China’s capital market and the domestic economic structure.”
Henry Huang, Associate Professor of Accounting at Yeshiva University, said to Xinhua that “securities markets are stages, and strong actors are the most important thing.”
According to Huang the return of outstanding Chinese companies that are listed abroad will bring pivotal benefits to investors, consumers and the market.
“This is comparable to talented overseas Chinese returning home to have a positive stimulating impact on entire industries or sectors.”
Huang also points out that the expansion of CDR operations will help to attract outstanding foreign companies to China’s A-share exchanges for listing, further increasing the vitality and appeal of Chinese capital markets.
He points out, however, that as a new financial product CDR’s will face considerable challenges, chief amongst them the sizeable differences between Chinese and US exchanges with respect to accounting benchmarks, information disclosure requirements and regulatory standards.