Reviewing recent developments in China’s capital markets and assessing the relevance of the Proposed Shanghai International Board

Abstract

Key pointsIn 2009, China disclosed plans for an international board (‘Proposed Shanghai International Board’) to be launched on the Shanghai Stock Exchange. The Proposed Shanghai International Board, if implemented, will be the first Mainland venue for international firms to issue shares to Chinese Mainland investors. Nonetheless, plans for the Proposed Shanghai International Board appear to have been shelved indefinitely since 2012.In the meantime, China has introduced key new initiatives and/or proposed important changes to the access and functioning of its’ capital markets. These include: (i) the launch of the Shanghai–Hong Kong Stock Connect in 2014, (ii) the upcoming launch of the Shenzhen–Hong Kong Stock Connect and (iii) the proposed shift towards a registration-based system for initial public offerings (IPOs). The key developments are addressed in Section 1 of this article.Section 2 of this article discusses the prospects for the re-launch of the Proposed Shanghai International Board with reference to three underlying trends, namely (i) capital account liberalization, (ii) the need for increased portfolio diversification and (iii) the need to improve corporate governance in China. This article makes the point that the Proposed Shanghai International Board (or some variation of it) can be a prudent way to provide increased portfolio diversification options for Chinese investors and improve corporate governance of the Chinese capital markets without jeopardizing China’s control over capital flows.