Could Hong Kong’s China listings party be about to end? There are rumours in the SAR that the China Securities Regulatory Commission, the mainland’s chief securities regulator, is deliberately dragging its heels on the approval of new listings for H shares, the designation given to mainland state-owned enterprises listed in Hong Kong, and urging companies instead to list domestically in Shanghai or Shenzhen.
Bankers familiar with mainland listing hopefuls in Hong Kong say that timetables have been derailed and plans diverted onshore as a result of CSRC intervention. And the listing process has been speeded up in China to encourage mainland companies to stay at home.
There is sound reasoning behind such moves. Although China’s mass privatization programme has gained much from outsourcing its listing venue to Hong Kong, the gains are mainly for the short term and monetary in nature. In the longer term, the country can ill afford to allow its best and largest companies to venture onto what remains effectively an offshore market. Denying its own nationals access to its best companies is no way to develop the sustainable domestic equity market that China desperately needs to fund continued expansion.
Although the reasoning might be sound, like much in the development of China’s domestic stock markets the execution leaves a lot to be desired. According to one source, the main thrust of the CSRC’s policy is to encourage as many of China’s state-owned enterprises to remain at home rather than list in Hong Kong. It says little or nothing about private-sector companies and there is indeed evidence that the proportion of private Chinese companies seeking to list in Hong Kong is increasing. Does the CSRC now regard Hong Kong as the listing venue of choice for private companies? If so, it is likely to be a big mistake, since state-owned enterprises, for all their size and attraction to institutional investors, are unlikely to be the key to the accelerated market-driven reforms that China’s stock markets so badly need.
With the very largest state-owned privatizations soon coming to an end, the emergence of a growing number of private sector listings from the mainland is just what Hong Kong’s market needs and it will waste no time in exploiting the opportunity. Asia’s investment banking community, meanwhile, will be viewing events with greater concern as more of the banking fee pie is dished out on the mainland. That makes the need for the banks to establish their onshore China securities businesses all the more pressing.