China Foreign Stocks Board ‘Very Close,’ Shanghai’s Fang Says

China is “very close” to starting a board for the listing of overseas companies in Shanghai and global manufacturers will have priority, according to the head of Shanghai’s financial services office.

The so-called international board will be a success because of pent-up demand for “high-quality” companies, Fang Xinghai, director general of the office, said in an interview today at Bloomberg’s Shanghai office. Coca-Cola Co., the world’s largest soft-drink maker, said this week it’s in talks to list shares in Shanghai, while HSBC Holdings Plc, Europe’s biggest bank, said in June 2010 it aims to raise a “significant amount” of funds.

“Manufacturing is the basic and most important for the economy,” Fang said. “The other industries like finance are all serving this main body.”

Shanghai Stock Exchange officials are seeking to lure multinational companies as part of a drive to build the city into a global financial center by 2020. General Electric Co., Unilever Plc and Volkswagen AG are among the multinationals that have expressed interest in listing on the board, the National Business Daily reported in July 2010, citing He Zhaofeng, a managing partner at Ernst & Young LLP’s greater China operations. While overseas companies can sell stock in Hong Kong, they’re barred from doing so in mainland China.

China is “coming closer” to starting a board for the listing of overseas companies in Shanghai, Shang Fulin, chairman of the China Securities Regulatory Commission, said on May 20. He didn’t give a specific timetable.

‘Very Close’

The government may approve a board for overseas companies on the mainland by the end of June and the first listing may occur as soon as October, Caixin Century magazine reported May 30, citing an unidentified investment banker.

“As chairman Shang has said, it’s coming closer, it must be very close,” Fang said.

The government is introducing financial reforms to revive investor interest in the nation’s equities after the Shanghai Composite Index slid 14 percent last year, the worst among the world’s biggest stock markets. The Shanghai stocks gauge has fallen 3.7 percent this year. Even with the slump, the measure trades at 12.4 times estimated earnings, compared with 11.2 times for a gauge of emerging-market companies, according to data compiled by Bloomberg News.

Listing in China would allow foreign companies to benefit from higher valuations and give them access to the Chinese currency to fund their expansion in the world’s second-biggest economy, Arjuna Mahendran, Singapore-based head of investment strategy for Asia at HSBC Private Bank, overseeing $460 billion globally, said June 1. “This would be attractive for Chinese domestic investors as it would give them more diversity in the type of companies they can invest in,” he said.

Business Development

The Shanghai exchange has been trying to catch up with global rivals in developing more sophisticated financial products as the stock market grows to become the world’s third- largest in terms of market capitalization. Shanghai introduced stock-index futures in April 2010, while an exchange official said this March China plans to more than double the number of exchange-traded funds they offer this year.

“We are interested in exploring the opportunity of listing our stock on the Shanghai Stock Exchange,” Geoff Walsh, Coca-Cola’s Hong Kong-based public affairs and communications director for Asia, said on June 1. HSBC wants to make its shares “easily tradable in Shanghai” and the sale should reflect the size of the group, its chief executive officer said last June.

“The focus should be if the international board will be a success rather than the valuations or who’s going to be listed first,” Fang said. “It will be a success if issuers feel the listings in China will help their business development and the stocks are well accepted by Chinese investors.”

--Irene Shen, Rishaad Salamat, with assistance from Melody Fu in Hong Kong. Editors: Allen Wan

To contact Bloomberg News staff for this story: Irene Shen at +86-21-6104-3049 or ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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