China wasn’t that its biggest companies should come back home.
Stock exchanges outside of china have been chosen by some of the largest companies in China to launch IPOs in recent years.
New York is the place where Alibaba and Baidu, two of the leading tech companies of China, trade. And Hong Kong stock exchange is the listing place for another Chinese tech giant Tencent. The market of Hong Kong are mostly detached from those in the mainland.
“It basically comes down to pride and control,” said Andrew Polk, founding partner at research firm Trivium China. “Chinese regulators don’t like the fact that some of their marquee companies have listed overseas.”
A wide range of stringent requirements has made the domestic stock markets in China less attractive for some companies. Dual class shares are disallowed in Chinese exchanges even though it is very common in the United States. Dual class shares allow more powers to certain shareholders compared to others.
The markets of United States and Europe are dominated by big institutional investors which are absent in China’s financial markets which makes it unattractive also, say experts.
But now some of those regulations are planned to be loosened by the Chinese government.
The government has come up with a program known called the China Depository Receipts (CDR). Under this program there would be encouragement form the government for large Chinese companies in high-tech industries to get themselves listed at either Shanghai or Shenzhen stock exchanges. And this can be done by them even as they have other foreign listings.
However, there are some analysts who criticize the move and claim that this is just a step by the Chinese authorities to allow them an opportunity to exercise more control over the private companies.
Government will be able to influence their running and keep a close watch on them if such companies can be coaxed into getting listed in China.
The CDR initiative is “intended to further subject large Chinese corporates to Beijing’s bureaucratic control,” said Brock Silvers, managing director at Shanghai-based investment advisory firm Kaiyuan Capital.
In recent months, Chinese authorities have become increasingly sensitive on issues related to foreign listed Chinese companies – especially those in the tech sector.
“Technology has emerged more and more as an issue of national interest” in an environment of a possible trade war between China and the United States, said Lyndon Chao, a managing director at the Hong Kong-based Asia Securities Industry and Financial Markets Association.
There have been deep concerns expressed by US officials on the issue of the plans by China to bolster its domestic tech industry particularly in sectors such as in computer chips, artificial intelligence and electric cars.
Chao said that enticing back companies such as Alibaba and Baidu into China is a way “for China to reclaim Chinese technology companies.”
(Adapted from Money.CNN.com)