In the news: HK and China kick off dual trading, Weibo prepares for US IPO and EU criticises China's telecom sector

Hong Kong and China dual-share trading

The China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) made a joint announcement on April 11 allowing the dual trading of A-share and Hong Kong-listed shares. Hong Kong investors will be able to trade shares in the A-share market, while investors in Shanghai can do the same on the Hong Kong exchange. The change is expected to boost brand-name Chinese companies whose shares trade exclusively in Hong Kong, while broadening the scope for arbitragers to narrow price differences between dual-listed stocks.

Sources:
CSRC
Bloomberg

Linking up with the city is a clear indication of China opening up its capital markets to Asia and the rest of the world. The move follows policy makers' pledges of relaxed capital controls, the largest expansion of economic freedoms since the 1990s and the recent widening of the Yuan's trading band. It allows China to introduce more investment options after a wave of money that went into real estate and loosely-regulated wealth management products exposed investors to property bubbles and default risks. It also boosts Hong Kong's status as the investment gateway to the fastest-growing major economy, and strategists expect China's exchanges may eventually be completely integrated with Hong Kong. In time, this will be expanded to other asset classes like bonds and commodities, and banks and law firms will need to step up in sophistication as the world's largest market becomes increasingly complex.

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Weibo heads to Nasdaq for US$340 million IPO

The microblogging service Weibo, often likened to a Chinese Twitter, is valued at US$3.9 billion (Rmb24.2 billion) and is expected to raise US$340 million (Rmb2.11 billion) in its US public offering. It suggests a tighter relationship with e-commerce giant Alibaba as Weibo spins off from another major internet firm Sina. A unit of Alibaba has agreed to buy three million shares in the IPO and had an option to increase its sake up to 30% from its current 18%. Sina would still hold 56.9% of the capital after the IPO, down from 79.9%. Sina, China's largest web portal which went public in 2000, will sell about 24 million of its current 140 million Weibo shares in the offering and will convert the remaining to Weibo's new class B shares, of which Sina will own 100% and has three times the voting power of regular class A shares.

Sources:
South China Morning Post
Forbes

Weibo, with 130 million monthly active users, is the latest Chinese internet giant to tap US markets, closely following Baidu and parent Sina. Its revenue comes mostly from advertising, with additional sales via games and other services. Weibo's offering will be a test for Alibaba which hopes to hold an IPO this year in the US as well. Alibaba will not sell any of its Weibo shares during the offering. With a prospective IPO valued at $16 billion, Alibaba is way ahead of everyone in the internet race. It recently branched out of its sector by buying financial software firm Hundsun and cable TV company Wasu Media. How big will these empires get and how will the antitrust authorities react?

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EU trade commission criticises Chinese telecom subsidies

Europe's top trade official Karel De Gucht plans to drop an unfair pricing investigation into EU imports of Chinese mobile equipment, but criticised the country's government subsidies to its telecom sector as fundamentally unfair. He said he decided not to pursue the antidumping investigation into companies such as Huawei and ZTE that are said to have dumped telecom network equipment onto the European market at below-cost levels. The ultimate problem was said to lie in subsidies given to mobile telecom networks, and the proposed anti-subsidy investigation into Chinese telecom activity still stands, although it won't be implemented at this stage. The decision to drop the investigation followed last week's settlement of two EU-China trade disputes over polysilicon and wine imports to China.

Source:
The Register

The investigation will be put on hold to allow negotiations with the Chinese authorities to take place. If the investigation begins, it could result in the commission imposing punitive tariffs on Chinese mobile equipment imports in the EU. De Gucht said the EU would have to secure important concessions from Beijing in order to settle the case, and that the way the industry benefits from the support of Chinese state banks and other parts of the government was fundamentally unfair. The subsidy issue is unlikely to be settled before Xi Jinping's visit to Brussels on Monday, though a deal may be struck before the EU and China meet to discuss trade and economy matters in the summer. The president's visit is to accelerate bilateral China-EU investment treaty negotiations and the development of free trade agreements. The telecom sector is one that China is unwilling to dilute state ownership of. Whether international and political calls will help open the industry to private and foreign investment remains to be seen.

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