Int’l Board Bound For Shanghai New Trade Zone?
I’ve avoided writing about the new Shanghai Free Trade Zone (FTZ) up until now, despite exhaustive coverage in both domestic and international media. But now I’m lifting my informal ban, following new reports saying the FTZ could soon host a proposed but long-stalled international board where foreign companies could list their shares in China. Such a development would be quite exciting, as it could finally allow big names like China Mobile (HKEx: 941; NYSE: CHL) and Lenovo (HKEx: 992), which are technically based overseas, to finally make their shares accessible to investors in China.
Before I go any further, I should clarify my view on the highly-hyped Shanghai FTZ, which formally opened at the end of September after months of buzz. I personally think the zone will be very successful over the long run, since Shanghai has a very strong track record for this kind of business initiative. The problem for me was the lack of details, which I suspect is the result of overly eager city officials wanting to publicize the FTZ as quickly as possible.
Over time, it’s become clear that the zone will be a test-bed for financial reforms, many aimed at opening up China’s banking sector and making its currency, the yuan, more freely convertible. Against that backdrop, these latest rumors about a move into the zone by the long-discussed international board looks quite interesting and even plausible.
The international board was first proposed 4 or 5 years ago, and quickly became a hot topic. It would have allowed high-quality western names that did big business in China stage local IPOs, giving Chinese investors access to companies like British banking giant HSBC (HKEx: 5; London: HSBA) and German software maker SAP (Frankfurt: SAP). The board would also have allowed listings by Chinese giants like China Mobile and Lenovo, which both incorporated overseas years for technical reasons at that time that allowed them to list in Hong Kong.
All of these companies and many others have expressed an interest in listing in Shanghai, hoping to raise their profile among increasingly affluent Chinese investors. The Shanghai stock exchange was also reportedly eager to launch the new board as early as 2010. But the plan was repeatedly delayed for different reasons, most recently due to weakness in China’s 2 main stock markets that has resulted in a nearly yearlong suspension of new IPOs.
Media reported about a week ago that Shanghai had unexpectedly reopened its plans for the international board, but stock exchange officials quickly denied those rumors. But now the Wall Street Journal is citing 2 unnamed sources saying the new board could actually launch inside the FTZ, allowing any company registered there to sell shares to investors. (English article) It looks like talks are still quite early, and the report says the exchange would actually be a pilot project for the true international board.
Like everything else associated with the FTZ, this new report is noticeably lacking in detail, most likely because discussions probably began just a week or two ago. But the launch of a test board in the zone would certainly be an encouraging sign, and could attract big foreign names like HSBC, Standard Chartered (HKEx: 2888; London: STAN) and Lenovo, which have all expressed an interest in making domestic Chinese IPOs.
Of course it’s still possible the plan could ultimately stall, much like the plan for the original international board. But I would actually give this latest plan a better than 50 percent chance for success, due to its relatively small scale and also the desire by Shanghai officials to attract big-name foreign firms to the FTZ. Accordingly, I wouldn’t be surprised to see a formal announcement of this new trial international board as soon as the middle of next year.
Bottom line: Shanghai is likely to set up a trial international board in its new FTZ by the middle of next year in a bid to lure big name firms to the zone.
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