Today I am going to spend a few words about “delisting of listed companies” and possible reforms for the financial markets, in fact this topic is closely related to the ones we have examined in the last entries.
In a move to set up sound, fair market for investors, the top securities regulator is studying to introduce delisting procedures for the main board to insure fair market in which investors’ interests are protected. “
A delisting system, which can improve market efficiency, should be launched on the foundation of an investor protection system
,” expressed Guo Shuqing (Chairman of the China Securities Commission – CSRC) more than one year ago (China Daily, Tuesday, March 6, 2012). Substantially, delisting procedures allow stock exchanges to suspend and cancel share trades for companies that have been in the red for a certain period of time. However, reference must be made to the Securities Law (
http://www.csrc.gov.cn/pub/csrc_en/laws/rfdm/statelaws/200904/t20090429_102757.htm
), and to the rules of each Stock Exchange, and not only the rules the CSRC (http://www.csrc.gov.cn/pub/csrc_en/).
The government will deepen the reform of the financial system by completing and improving the new share issuing and delisting system and therefore strengthening the protection of investors’ return and interests, this in order to instill more confidence among investors.
The CSRC is also studying methods for injecting pension funds into stock markets, to give more room and opportunities for investments to these entities.
China Securities Market: The Role (and Opportunities) of Foreign Firms
When China joined the WTO 12 years ago, it opened up many of its sectors for the first time, and one of these was the “securities market.” According to the promises made in 2001, offices of foreign securities firms in China were allowed to become special members of the Chinese securities stock exchanges and to set up joint ventures to operate securities investment and fund management with a maximum stake holding of 33%. (Three years later (2004), foreign stake holding in a Chinese financial institution were allowed to reach 49%. By the end of 2006, the establishment of six joint-venture securities firms and 24 fund-management companies had been approved, and foreign held shares had reached 49% in 11 fund-management companies). Twelve years after China’s admission to the WTO, there are only 12 joint-venture securities firms operating on the Chinese mainland (they include China International Capital Co. Ltd., the first jointly funded investment bank in China). This liberalization made China a world investment destination, and Shanghai was one of the cities that benefited most from that trend. As China’s financial hub, Shanghai has seen its financial sector developing very fast, as well as Hong Kong. However, the expansion of foreign investment institutions in China remains slow and joint-venture securities firms are still struggling to gain clients. While foreign investment institutions have taken part in facilitating Chinese companies selling shares in Hong Kong or foreign markets, their business in the domestic A-share market was not so significant according to “Wind Info,” a Shanghai-based integrated service provider of financial data (December 2011). Analysts said that joint-venture securities firms are unlikely to challenge the dominance of their local counterparts in the domestic underwriting business in the near future.
The China Securities Regulatory Commission (CSRC) introduced rules in June 2002, which set the maximum foreign stake in a Chinese brokerage at 33% as mentioned above. Following this move, UBS, Goldman Sachs, Credit Suisse and Deutsche Bank each formed a Chinese JV with local securities firm by holding a minority stake. (Most joint-venture Securities firms are formed by foreign investment banks and domestic small- and medium-sized Securities firms. It must be noted that the sharp differences in corporate culture and attitudes to operation and management between Chinese and foreign companies have turned the expected advantages of joint venture into disadvantages. For example, in 2007, a joint venture between domestic Changjiang Securities Co. Ltd. and BNP Parisbas Bank, has dissolved after three years due to differing opinions on its future and operation). Despite the local market restrictions, foreign investment institutions are eager to expand their business in China, the world’s second largest economy with a capital market that raised about USD 72 billion in IPO deals in 2010, which was more than the Hong Kong and New York stock exchanges for the first time. Moreover, it seems that foreign investment banks want to learn more about the operation of the domestic capital markets and boost their brands names in China cooperating with local companies. Therefore, it is very likely an expansion in this sector in the coming years.
Cristiano Rizzi
(Some of my entries are extracted from my work titled M&A and Takeovers in China, so if you are interested in this topic, please visit:
http://www.kluwerlaw.com/Catalogue/titleinfo.htm?ProdID=9041140484
).