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China Wants Its Tech Firms Back. Are CDRs the Answer?

Employees work at the Baidu Inc. headquarters in Beijing, China, on Tuesday, Jan. 19, 2016. 

Photographer: Qilai Shen/Bloomberg

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China has produced some of the world’s fastest-growing tech businesses, but mainland investors have been unable to easily share in the gains. The likes of Alibaba Group Holding Ltd. and Baidu Inc. have headed overseas to go public, leaving domestic investors to rely on staid state-run industries to get their fill of large new listings. That may be about to change after authorities announced a trial of so-called Chinese depositary receipts -- a bid to entice home the tech giants and attract the next crop.

Around the world, depositary receipts are surrogate securities that allow domestic investors to hold overseas shares. So, for example, American depositary receipts package overseas equities and sell them in dollars on U.S. exchanges, with the underlying security held by a financial institution overseas. The CDR would be China’s version of the ADR, bought and sold in yuan on Chinese exchanges.