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China has ramped up efforts to convince European multinationals to list their shares in Shanghai, but has run into just a tiny little problem: nobody’s interested.
Among the many sound reasons for politely saying boo (meaning no in Mandarin), one stands out: their CEOs don’t want to risk going to jail. Seems fair to us.
Heralded With a Sad Trombone
In 2019, the Shanghai and London stock exchanges launched a much-vaunted program to make Chinese-listed shares available to investors in Britain, while offering British-listed shares to investors in China. Then, like a tragic birthday party at Chuck E. Cheese, hardly anyone showed up. Huatai Securities, a state brokerage, was the first to list in London, followed by three more state-owned firms, cumulatively raising $5.8 billion through the issuance of global depositary receipts. Yet not a single London-listed firm listed in China, and there have been no new issuances via the program since 2020. Ouch.
Despite absolutely zero fanfare, the program was expanded to Germany, Switzerland, and Shenzhen earlier this year. Chinese officials eased the financial reporting and disclosure obligations of foreign firms to try and lure in some listings, but there remains the one giant catch:
- Under Chinese law, the CEOs and executives of publicly listed companies can be held criminally liable for their firms’ activities. China’s draconian legal system was ranked 98th out of 139 countries by the World Justice Project last year (translation: not good for those seeking justice,) reporting a conviction rate of 99.965% in 2019. No European CEO in their right mind would risk trading in their navy blue Armani suit for an orange jumpsuit; besides, China did not address this concern in its latest rule changes.
- According to sources who spoke to The Wall Street Journal, HSBC, UBS, Siemens, and Volkswagen — all of which have a significant presence in China — were approached about listing under the program, and all opted for thanks, but no thanks.
One Way Ticket: While a European firm has yet to use the program to list global depositary receipts in China, four more Chinese companies, among them machinery firm Sany Heavy, are planning listings on Zurich’s SIX Swiss Exchange now that the program has opened up to additional markets.