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2 Shenzhen nuzzles closer to Hong
Kong By Olivia Chung
are incorporated on the mainland
and approved for listing in Hong Kong.
The
mainland’s strong economic growth and successful
reform that has led to the flotation of state
holdings has been augmented by a flood of funds
into Shanghai and Shenzhen’s stock exchanges,
helping to create conditions that could lead to
overseas-registered mainland companies, the red
chips, and even foreign companies listing in the
mainland. At present, the Chinese
government is considering
changing listing regulations to let red chips take
this path.
One reason behind the red
chips’ eagerness to return home to raise more
funds is the high valuations A shares are
generating. The Shanghai Composite Index, which
tracks yuan-denominated A shares and hard-currency
B shares, surged 176% in the 12 months to
mid-November, with A shares trading at an average
price of more than 40 times their earnings and
leaving their H-share counterparts trailing at big
discounts.
State-owned enterprises
including red chips now account for a bigger
percentage of the volume at the stock exchange of
Hong Kong than local blue chips. A possible single
listing in the A-share market by state-owned
companies or return of the red chips to list in
Shanghai could trigger an exodus of funds from
Hong Kong that could destabilize growth in the
territory.
By the end of November last
year, 85 red chips with a combined market value of
HK$2 trillion were listed in Hong Kong, accounting
for 21% of the exchange’s overall market value.
Some commenators have suggested a merger
between the Hong Kong and Shenzhen exchanges, a
move soon declined by Hong Kong academics and
officials, who pointed out that the Hong Kong
stock exchange is a listed company while the stock
exchange of Shenzhen is owned by the Chinese
government.
Instead, a single trading and
listing platform jointly established by the Hong
Kong exchange and the exchanges of Shanghai and
Shenzhen had recently been suggested, in which A
and H shares could be freely traded on the three
exchanges although they have different
shareholding and company structures.
That
would touch on the issues of the convertibility of
the yuan and restrictions imposed by the mainland
on the mobility of users and providers of
financial services, Tuan said.
''Besides,
there are many technical issues to deal with, for
example the listing, settlement and regulatory
regimes of the three exchanges are different;
investors inside and outside the mainland are also
not allowed to trade in each other’s markets,'' he
said.
Even so, if a single market between
Hong Kong, Shanghai and Shenzhen exchanges is
establshed, it could become one of the most
actively traded markets in the world, he said.
According to the South China Morning Post,
the combined market turnover of Hong Kong,
Shanghai and Shenzhen reached US$1.03 trillion in
the first seven months of the year, trailing the
New York Stock Exchange (US$12.95 trillion),
Nasdaq (US$7.03 trillion), London (US$4.26
trillion) and Tokyo (US$3.61 trillion).
In
what was seen as a step towards moving forward the
concept of closer links between the area's
exchanges, the Hong Kong government recently
increased its shareholding in the city's exchange
to 5.88% from 4.41% to become the single largest
shareholder while continuing to talk with the
mainland about the idea.
The victory of
the pro-democracy camp in December 2 by-elections
in Hong Kong added a twist to the debate, with
Anson Chan, a passionate advocate for democracy,
winning a seat in the city's Legislative Council.
Chan, who held the city's second-highest post, and
other senior officials trained by the British
administration, were opposed to closer economic
ties with the mainland when the subject was raised
a couple of years before the 1997 handover.
In anticipation of the nod from the state
council, Shenzhen Mayor Xu Zongheng is scheduled
to visit Hong Kong before the end of the year to
flesh out the proposed merger. But Hong Kong
observers say the scheme would require a
meticulous scrutiny in order to win public
backing.
"Economic integration is
certainly most welcome but Hong Kong people don't
want to see any political synergies," says Joseph
Cheng, professor of political science at the City
University of Hong Kong. "Political integration
could endanger Hong Kong's rule of law and could
flatten our lifestyles".
Other researchers
say Hong Kong and Shenzhen have moved towards a
unified management in areas like shipping, for
example, even before a formal proposal has been
approved.
"We already have a merger in a
sense," says Michael DeGolyer of the Hong Kong
Baptist University who works on the Hong Kong
Transition Project examining the changes since the
handover. "Hong Kong and Shenzhen ports are in
fact merged because they are owned by the same
company."
While he believes Hong Kong
people tend to see the proposed integration in a
constructive way - as a unified solution to common
problems like pollution - he is emphatic they
would not tolerate any imposed changes to the
existing political system.
Olivia
Chung is a senior Asia times Online reporter.
With additional reporting from Inter Press
Service.
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