In the News: Shortened Negative List; Hometown IPO Preferred; Shanghai-Frankfurt Stock Connect; and Inbound FDI Growth

Apart from the trimming of the number of items, another feature of the latest version of the general negative list is the further consolidation of existing prohibitions and requirements in order to make the regulatory regime more rigorous and transparent—an explicit legislative objective of the list. According to the NDRC, the 2019 list renders redundant 23 negative lists compiled by local authorities, thereby simplifying the regulatory regime by establishing a so-called "national unified list". In addition, the authorities have tried to make the regime easier to navigate for investors by naming the government agency responsible for approving market entry for each sector on the list.

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China's private firms prefer IPO in China, survey shows

Most Chinese private companies prefer having their initial public offering (IPO) at home than listing in the U.S., a new survey has found. The private survey of more than 1,200 business leaders across China conducted jointly by Tsinghua University and Marcum Bernstein & Pinchuk LLP (Marcum BP), a leading auditor for U.S.-listed Chinese companies, found that 66% of respondents view China as the most attractive listing venue, while just 18.7% said the U.S.

Conducted at the beginning of Q3, the survey noted that Chinese business leaders remain committed to global expansion, shifting their focus from the U.S. to Southeast Asia and Africa. Even Hong Kong, which has been racked with violent protests in recent months, is ahead of the U.S as a preferred IPO destination. The survey also found that 71% of Chinese executives are "very willing to consider mergers and acquisitions" as part of their growth strategies, with acquiring advanced technology being a main driver for this.

In 2019 so far, 18 Chinese companies have listed on Nasdaq or the NYSE, down from 26 in 2018. That figure is unlikely to rise soon given the current political environment. The U.S. is increasingly signalling its hostility to Chinese companies with talk of the possible delisting of Chinese stocks and proposed blocks on government pension funds investing in Chinese companies. On Nov. 14, a bipartisan commission recommended that Congress counter China's "unfair economic practices" with measures restricting U.S. capital flows toward Chinese companies by barring those who failed to meet disclosure requirements from listing in the U.S. China meanwhile is pushing for more of its companies to list at home rather than abroad. In recent months, it has launched a new board run by Shanghai Stock Exchange targeting technology startups and introduced significant reforms to simplify the IPO process.

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Shanghai-Frankfurt stock connect to be launched

China is planning to launch a stock connect program linking the bourses of Shanghai and Frankfurt according to the Co-Chief Executive of China Europe International Exchange (CEINEX), the first dedicated trading channel for China and renminbi investments outside the mainland. Speaking at a financial forum in Frankfurt on Nov. 20, Chen Han said many high-quality firms are considering listing via the program following the success of the Shanghai-Hong Kong and Shanghai-London stock connect programs. He did not provide a timetable however.

CEINEX is a joint venture established in 2015 by the Shanghai Stock Exchange, the German exchange operator Deutsche Boerse Group, and China Financial Futures Exchange. Endorsed by both the Chinese and German governments, it has in its mission the task of promoting renminbi internationalization. In 2018, CEINEX launched the "D-share" market with Qingdao Haier becoming the first (and still only) Chinese company to list in Frankfurt under the scheme. The stock connect proposal will further ties between the capital markets of the two countries by allowing German blue-chip companies to issue China depository receipts (CDRs) on the Shanghai Stock Exchange, while Chinese companies will be able to issue global depository receipts (GDRs) on the Frankfurt Stock Exchange.

Depository receipts are negotiable securities issued by banks representing the equity of companies listed overseas traded in a local stock exchange. In effect, the plan would make it possible for well-known German conglomerates like BMW to trade their shares in Shanghai. If introduced, the Shanghai-Frankfurt stock connect program will be the first that China launches on continental Europe. The first stock connect program was launched between the Shanghai and Hong Kong exchanges in 2014 and later expanded to include Shenzhen in 2016; it now covers over 2,000 eligible equities in the three cities. In June, the Shanghai-London stock connect program was launched, allowing foreign firms to list their shares in mainland China for the first time.

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China's FDI on track to match previous year

China saw healthy growth in inbound foreign direct investment (FDI) in the first 10 months of 2019, official statistics show. According to the Ministry of Commerce (MOFCOM), FDI increased 6.6% from a year earlier to $107.1 billion. It means China is on track to match the total of $135 billion in FDI inflows reached in 2018, MOFCOM officials said at a press conference on Nov. 18.

China's pilot free trade zones (FTZs) experienced significant increases in FDI with inflows increasing 23.9% year-on-year to top $15 billion, while FDI in the Yangtze River Economic Belt rose 8% year-on-year to $52 billion. FDI in high-tech industries jumped 39.5% year-on-year to $32 billion, accounting for almost 30% of total FDI, MOFCOM revealed. Complementing the data, MOFCOM officials said that there has not been a large-scale withdrawal of foreign capital from China, although there was acknowledgement that some foreign companies are shifting away their supply chains from China.

Launched in 2013, Shanghai's FTZ was the first of its kind in mainland China and has been one of the largest recipients of FDI. It is home to Shanghai's largest foreign-invested manufacturing project, the U.S. electric carmaker Tesla's gigafactory, which broke ground in January and is set to deliver its first batch of made-in-China Model 3 electric vehicles in early 2020. Earlier in November, the Ministry of Commerce established a new FTZ department to oversee China's 18 FTZs, including six new ones announced in August.

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