The increased sophistication of the mainland's capital market and a flood of funds into Shanghai and Shenzhen's bourses are creating good conditions for red chips to list at home.

 

Red chips are stocks of companies incorporated and listed in Hong Kong, but whose main businesses are on the mainland. Most of the red chips are large conglomerates that listed on the Hong Kong market in the 1990s.

 

By the end of November, 85 red chips with a combined market value of HK$2 trillion were listed in Hong Kong, accounting for 21 percent of the bourse's overall market value 3 percentage points higher than those of H shares, which are of mainland incorporated companies listed in Hong Kong.

 

Red chips' eagerness to return to the home market is inspired by a 127 percent main index growth in Shanghai in 2006, and also encouraged by the successful dual listing model of blue chips such as the Industrial and Commercial Bank of China.

 

"China's securities regulator is creating favorable conditions for red chips to come home," an official with the China Securities Regulatory Commission said.

 

Listing regulations currently do not allow overseas incorporated companies to directly list on the mainland.

 

However, as red chips are in fact mainland companies, it will not be a big problem for them to list in Shanghai through some share restructuring.

 

"It is hard to change the regulations under the current circumstances, but red chips can find a back door," said Li Yongsen, a professor with Renmin University of China.

 

Once the red chips return, they are expected to lead the market's growth in 2007, analysts say. "The red chips should return as soon as possible as the flood of new funds into the A-share market has created a great demand for new shares on the supply side," said Zhao Jianxing, with China Merchants Securities.

 

China Mobile is likely to become the first overseas incorporated company to list in Shanghai.

 

The telecom carrier, the largest among all the overseas listed mainland companies in terms of market value, is expected to launch its A-share listing in the first half of 2007, a local media report said.

 

It said the telecom carrier has already chosen its underwriters to sell A shares. The company's spokesman however later denied the news.

 

The report also said the company had chosen to directly issue A shares in Shanghai, abandoning its former plan to issue Chinese Depositary Receipt, a certain amount of investment units comprised of Hong Kong shares sold to A-share investors.

 

(China Daily January 4, 2007)