China may allow foreign companies to trade on domestic exchanges

BEIJING - The People’s Bank of China is considering allowing foreign companies to trade on domestic stock exchanges via depository receipts, according to China Business News, which reported the PBoC as saying i Issuance of Chinese Depository Receipts (CDRs) – RMB-denominated certificates representing a specified number of shares in qualified foreign companies to trade like regular stocks in China – could be another step forward to orderly realise RMB convertibility on the capital account.

Analysts agree that it would be an easier and more cost-effective way for foreign firms to gain more exposure in the Chinese market and for Chinese investors to buy shares in highly-valued foreign companies.

Senior research fellow, Chen Ji, with China’s Bank of Communications, said that depository receipts “are not stocks per se, but a derivative product in corporate financing”, adding that problems “remain to be solved as to what kind of foreign companies are qualified for CDRs or how domestic buyers could get fully informed about underlying equities before investment”.

Chen said it is still too early to tell if this will evolve into a major tool for Chinese overseas investment: “It largely depends on how much foreign companies are willing to issue CDRs in China.”  www.webershandwick.cn (ATI).