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Boston College Law School

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Friday, July 6, 2007

China and The Global Listings Market

According to a forecast issued by PwC, new issuers on the mainland Chinese markets are set to raise over $52 billion in capital this year.  If the figure proves correct this would make mainland China the  world’s leading place for equity capital raising in 2007 beating out Hong Kong, London and New York.  For comparison, last year ipos raised $41 billion, $39 billion and $29 billion in each of these jurisdiction respectively. 

The figures are interesting for at least two reasons.  First, share issuances on the mainland are largely A-share listings on the Shanghai Stock Exchange and Shenzhen Stock Exchange.  A-shares are traded in renminbi and can be purchased only by Chinese citizens and a few well-connected foreign financial institutions.  The FT is reporting today that these share issuances are actually part of the Chinese government strategy to slowly deflate the market.  In recent weeks, a series of state-owned companies have come forward with plans to launch large, new share offers in the Shanghai market including Shenhua Energy, a coal miner, planning a $6.3 billion ipo and PetroChina a $6 billion listing.  The Chinese government is hoping that the share issuances will provide more supply and liquidity dampening fervid demand (e.g., in May 300,000 new share trading accounts were being opened each day in China, dropping to the still torrid pace of 100,000 per week  in reaction to the Chinese government's tripling of the tax on share trading to 0.3 per cent per trade).  Thus, these large capital raisings will mainly effect the local Chinese market and It remains to be seen whether they will only feed the bubble the Chinese government is struggling to control. 

The figures are also bad news for Hong Kong in the competition for listings.  Hong Kong is almost exclusively dependent upon mainland China for its growth. Mainland Chinese companies accounted for half of the market capitalization of the Hong Kong Stock Exchange in 2006 compared to only 16% in 1997 (see the data here). And as the Chinese mandarins push out their state companies, Hong Kong is at their mercy for deal flow.  For this year, it appears that the flow is being partially diverted.  Luckily for the United States the local flows of Chinese capital and listings do not impact it.  The U.S markets like London are the primary competitors for global capital raisings and listings, and here the United States is having a relatively good year.  In the year to June 5, there were 11 listings of China and Hong Kong-listed companies in the United States.  This is a marked increase over last year.  And all signs are that this will be a good year for the U.S. generally in the global listings market -- approximately 20% of the NYSE's new listings so far this year are from other countries. 

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