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2 Shanghai bourse gaining on Hong
Kong By Candy Zeng
future, which may contribute to
half of the new IPOs in the mainland in 2007.
"We are expecting more dual listings of
Chinese companies on the Hong Kong Stock Exchange
and the Shanghai or Shenzhen Stock Exchanges to
emerge in the near future. Some of these dual
listings might happen at the same time, while
others might
seek
to list in one market before another," said Lyn.
Paul Chow, executive president of Hong
Kong Exchanges and Clearing Ltd, also reckoned
that the Hong Kong Stock Exchange couldn't repeat
its success in 2006 and that IPOs on the mainland
are set to exceed those in Hong Kong in 2007.
China resumed initial stock issuance on
its two mainland bourses from the second half of
2006 while carrying out reforms to float
non-tradable state holdings and fix the
dysfunctional markets in Shanghai and Shenzhen.
According to some investment bankers, the Chinese
regulators are encouraging enterprises to raise
funds in domestic rather than overseas markets in
the last couple of months.
Before 2005,
the price of A-shares of a Chinese company had
become close to that of its H-shares, because of
the market slump in the mainland. But afterward,
the A-share prices swelled rapidly as more
investors flocked to the bullish Shanghai market.
Analysts found that A-shares of all
dual-listed companies were more expensive than
their H-shares in Hong Kong last year, while in
2005, the H-shares of 10 of the 30 dual-listed
companies were valued higher than their A-shares.
The high floating premium will pool more
mainland enterprises in the local capital market
instead of Hong Kong this year, according to
analysts.
Moreover, as the mainland
currency is widely expected to revalue steadily,
selling A-shares at home becomes more attractive
than selling H-shares overseas for Chinese
enterprises planning to raise funds this year.
All this has boosted Shanghai's ambition
to surpass Hong Kong as a major capital market, or
even an international financial hub, in the
region.
It has long been Shanghai's aim to
become an international finance hub to rival
Tokyo, London or New York, posing a challenge to
the established international city of Hong Kong.
It has been reported that during the annual
session of the National People's Congress in the
first half of March, NPC deputies from Shanghai
even moved to draft a law to ensure the
development of their city into an international
financial center.
Though experts say the
feasibility of passing such a law is slim, it is a
strong signal to Hong Kong that the growing
mainland financial power couldn't wait to jump in
line for international reorganization, the sooner
the better.
Zhu Delin, a financial
researcher and consultant for a Shanghai municipal
government think-tank, said it would take Shanghai
10-15 years to become an Asia-Pacific regional
financial center and 20 years to be at par with
the existing international financial centers.
However, he admitted that Shanghai so far
lags far behind Hong Kong in internationally
benchmarked business practices, financial services
and quality talent, and is stranded by such
market-openness issues as the full convertibility
of the yuan.
Will Hong Kong lose the
battle? Despite high-profile talk about the Hong
Kong stock market becoming supplementary to the
mainland, Frank Feng, PwC's Beijing office chief,
cites Hong Kong's virtues as a mature free market.
"The markets in Shanghai and Hong Kong are
different. The results of IPOs in the two markets
will be different as the yuan remains not fully
convertible. Basically, Shanghai is a domestic
market and Hong Kong an international market,"
said Feng.
At the end of 2006, the market
capitalization of the Greater China capital market
was 107% of gross domestic product, as compared
with 71% in 2005, while the combined ratio of
Shanghai and Shenzhen is 42% of mainland GDP. Both
of the above ratios were still behind those of
mature capital markets such as the UK (at 152% of
GDP) and the US (at 148% of GDP). The gap
indicates that there is still great room for
growth in China, said Feng.
Candy
Zeng is a freelance journalist based in
Shenzhen.
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