Ex-regulator sees red-chip paradise on the mainland

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The launch of an international board in Shanghai will not diminish Hong Kong's attractiveness to the mainland and foreign listings in the near term, said a former stock market regulator who used to serve on both sides.

Laura Cha, a Hong Kong deputy to the National People's Congress (NPC), told China Daily that the international board, which will allow foreign companies to list on the Chinese mainland, will become a paradise for foreign-registered Chinese companies - the red chips - first.

"Investors on the two exchanges are basically different," Cha said. "Since the yuan is yet not fully convertible, the international board will look for ways for mainland investors to invest in these leading Chinese enterprises, a number of which had IPOs in Hong Kong several years ago."

Several Hong Kong-listed Chinese companies have expressed interest in a Shanghai listing, including China Mobile and CNOOC Ltd. Cha said that as these companies operate their main business on the mainland, yuan-denominated listings would definitely be appealing.

Cha, 61, was appointed as a non-executive director with HSBC Holdings Plc this month, becoming the fourth woman on the board. She said that although HSBC also wants to trade its shares in Shanghai, the red chips are still likely to go first.

"We aim to become the first international company on the international board in Shanghai," said Cha, adding that a Shanghai listing would be HSBC's sixth.

The former vice-chairwoman of Hong Kong's Securities and Futures Commission, from 1991 to early 2001, was the first person from outside the mainland to be invited to serve in the Chinese central government, as vice-chairwoman of the China Securities Regulatory Commission from 2001 to 2004.

Cha believes there will be no collision as the two exchanges' aggressively pursue yuan-denominated listings - but she concedes that Hong Kong's buoyant stock market in the past few years has been largely supported by mainland enterprises.

Hong Kong has been the world's biggest IPO market for the past two years. In 2010, it saw a 79 percent increase in fundraising and a 55 percent rise in new listings, compared with the previous year. Cha attributes these accomplishments to some giant IPOs from the mainland, such as Agricultural Bank of China.

"Many mainland companies are eager for a listing, and a large number of mainland investors with sufficient funds are keen on finding ways to use their money, because the market doesn't lack liquidity, but sufficient investment products. This will all support a prosperous future for the long-discussed international board," Cha said.

"Hong Kong, on the other hand, is a mature market with simple and transparent trading procedures as well as a sound set of laws. It may have lagged in developing new investment products, compared with the mainland bourses, but its advantages will continue to attract both mainland and foreign capital," she said.

Hong Kong is also considering a platform to allow companies to issue yuan-denominated shares. In October, Charles Li, chief executive officer of Hong Kong Exchanges & Clearing Ltd, expressed a desire to see the first yuan-denominated IPO in the city happen in 2011.

However, yuan deposits in Hong Kong, though surging at a faster-than-ever pace, reached only 370.6 billion yuan ($56.4 billion) in January, according to data released by the Hong Kong Monetary Authority on March 1.

These deposits may be depleted immediately after a few yuan IPOs in the city, Cha said, adding that the yuan pool in Hong Kong is still not big enough to support mass yuan-denominated listings.

Meanwhile, the fact that the yuan is not yet being freely traded in overseas markets will initially also impede the international board's ability to attract companies.

"However, the yuan will trade freely some day, and Shanghai will become Hong Kong's major competitor regardless of the international board," Cha said. "Hong Kong's future will rely on maintaining its own strengths, and the same applies to Shanghai. Its unique strength will eventually emerge."

Cha said she is still proud of the corporate governance reforms she brought to the mainland when she was in office in Beijing, including the appointment of at least three independent directors on a board of a listed company, which also earned her the nickname of an "iron lady".

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