People’s Daily Warns Chinese Depository Receipts Could Cement Internet Monopolies


An article published by the flagship newspaper of China’s ruling communist party raises the possibility that Chinese Depository Receipts (CDR) could serve to shore up the position of the country’s internet giants by helping to finance their acquisitions sprees.

Beijing has just given the green light to CDR’s with the launch of the “Chinese Depository Receipt Issuance and Transaction Administrative Measures (Trial)” (存托凭证发行与交易管理办法(试行)) alongside a raft of accompanying regulatory documents.

The new financial instruments enable Chinese investors to obtain equity stakes in companies listed outside of China via domestic bourses.

Beijing hopes that the move will help to lure Chinese internet giants that first listed abroad back to the A-share market, to the benefit of the domestic capital market and tech sector.

Smartphone giant Xiaomi has already become the first Chinese company to apply for the issuance of CDR’s, which it hopes to use to abet its USD$10 billion Hong Kong IPO scheduled for July.

Officials expect CDR’s to provide greater financial support to enterprises in strategic or emerging industries, as well as to abet internationalisation of the Chinese market.

Some have expressed concern, however, that the launch of CDR’s will serve primarily to advance the interests of the incumbent tech giants and shore up their established position.

The People’s Daily cites the opinion of one analyst who points out that the four Chinese internet giants of Baidu, Alibaba, Tencent and (BATJ) are already long-established corporations with mature business models, who are eager to expand operations by means of acquisitions and take-overs.

The launch of CDR’s will provide them with a new channel of funding for takeovers, which could  enable them to “swallow up” small and medium-sized tech enterprises.

This will further exacerbate the monopoly positions they enjoy, and lead to “severe resource misallocation.”