China’s financial regulators are making haste to launch a new class of securities that will enable domestic investors to own overseas stocks, as part of efforts to bring the country’s leading tech firms back to domestic bourses.
Sources speaking to The Wall Street Journal said that the China Securities Regulatory Commission (CSRC) is working with the Shanghai and Shenzhen bourses to put the finishing touches on depository receipts – a type of security that lets domestic shareholders obtain stakes in companies that are listed abroad.
The financial regulators entrusted with the the launch of Chinese depository rates are under heavy pressure to get it just right, with senior political leaders concerned that the securities could see an initial high valuation followed by a sharp plunge given the marquee appeal of the companies concerned.
Beijing is also concerned that professional investors in a position to tap both markets will reap handsome profits from arbitrage opportunities.
Sources said that a listing by Alibaba could arrive as early as the summer, with CSRC now making haste to examine a comprehensive range of issues in relation to depository receipts, including accounting rules and depository receipts.
By using depository receipts CSRC can apply a distinct set of regulations to foreign companies, instead of needing to make adjustments to existing regulations for firms that are already listed in China.
Charlies Li, Chief Executive of Hong Kong Exchanges and Clearing, called the securities “a breakthrough” for the listing of foreign-incorporated companies in China at Wall Street Journal tech conference D.Live last week.
Beijing hopes that depository receipts will foster the return of some of China’s leading tech giants, who first listed abroad in order to gain access to the more favourable financing conditions of mature markets, and have since transformed into some of the world’s biggest companies.
The central government gave its approval in March to foreign-listed companies with innovative technologies and a market cap of at least 200 billion yuan to trade on domestic bourses.
Beijing expects the return of leading tech giants to serve China’s strategic interests by spurring the maturation of the equity market and putting domestic industry in a better position to compete for technology against the US.
A report from Citic Securities said that Alibaba, Baidu, China Mobile, China Telecom JD.com and Netease are amongst the leading candidates for Chinese depository receipts.
With a combined market capitalisation of 5.3 trillion yuan (approx. USD$840 billion), just 5% of their tradable value abroad would be equal to all funds raised via IPO’s on both of China’s stock exchanges in 2017.