China-Germany stock link technically ready; move means enhanced capital market connectivity with Europe
Move means enhanced capital market connectivity with Europe
Published: Nov 30, 2022 09:51 PM
Shanghai Stock Exchange Photo:CFP

Shanghai Stock Exchange Photo:CFP

A stock link-up between China and Germany is on the horizon, Niels Tomm, representative of the board at Deutsche Börse, said at a forum in Shanghai that ended on Wednesday, in a major step toward enhancing China-Europe capital market connectivity.

The new stock connect will pave the way for Chinese companies to tap European markets for fundraising, experts said, hoping for greater cross-border regulatory partnerships.

"We are now technically ready to launch the China-Germany stock connect and are happy to welcome A-share companies to issue global depositary receipts (GDRs) in Germany," Tomm said at the 2022 Shanghai Global Asset Management Forum. The two-day event, co-hosted by Bank of China and Yicai Media Group, concluded on Wednesday.

Chinese companies would likely welcome the opportunity to raise funds from Germany. Capital markets mutual opening and connectivity bodes well for the two countries to team up in fields such as flows of people, capital, technology and management, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Wednesday. 

On top of that, more European countries are extending a welcoming hand to Chinese firms planning GDR listings, which indicates that Chinese companies and investment institutions have made headway in healthy development as they turn out to be internationalized businesses, institutions and investors, Dong said. 

The expert said that the two sides ought to dovetail their regulatory oversight to enable effective cross-border regulatory partnerships.

At the Shanghai forum, other major European exchanges were upbeat about GDR listings from China under a similar stock trading link.

"The pipeline for further GDR listings on SIX looks very promising despite the current macroeconomic challenges and some uncertainties involving the pandemic," Marco Estermann, head of business development at SIX Swiss Exchange, told the Shanghai forum, according to Yicai.

"I'm confident that we will see several additional GDR listings on SIX over the coming months," Estermann said.

Jon Edwards, chief representative of the London Stock Exchange Group, disclosed at the forum that more than $6.5 billion has been raised by the five Chinese firms that have listed GDRs.

In addition to the five Shanghai-traded firms that have issued GDRs in the UK, three have issued GDRs in Switzerland, with a combined financing amount of $7.1 billion, Harry Fu, managing director of the global business development department at the Shanghai Stock Exchange, revealed during the forum.

Besides, five Shenzhen-listed firms have raised approximately $1.9 billion on the SIX Swiss Exchange. The businesses that listed GDRs are in sectors that range from new energy and new materials to healthcare and finance.

Earlier this year, Jürg Schneider, spokesperson for Swiss exchange operator SIX, told the Global Times that SIX is working with relevant authorities and partner exchanges to progress on the journey that started in 2019, after signing agreements with Shanghai and Shenzhen, to establish an attractive stock connect system with Chinese exchanges that will allow Chinese companies to tap into the Swiss capital market, while ensuring the highest standards of investor protection.

In February, the Chinese securities regulator unveiled revised rules, which stipulate that eligible businesses traded on the Shenzhen Stock Exchange will be included in the stock link, which previously only comprised firms listed on the Shanghai and London stock exchanges.

Exchanges in Switzerland and Germany also became part of the link, pursuant to the revised rules.

The stock link-up includes both eastbound and westbound trading, with the former direction consisting of firms listed on foreign exchanges with offerings of Chinese Depositary Receipts (CDRs) in the Chinese mainland market. Mainland-listed firms, for their part, issue GDRs on overseas stock exchanges. 

Initially, GDR issuers can raise funds on overseas markets while CDR issuers can only list CDRs on mainland exchanges and not raise capital.

Since the US enacted the Holding Foreign Companies Accountable Act in 2020, China has maintained communications with US regulatory authorities and sought ways to resolve the accounting and auditing issue, market observers said, adding that the stock link-up between China and European exchanges has increasingly been seen as a conduit for local firms to rev up their global expansion.

Europe unseated the US for the first time for Chinese listings, media reports said in September, citing data from UK financial markets platform Dealogic.

In a sign that the country is fast-tracking its two-way financial opening, more than 20 A-share firms have revealed plans for GDR listings this year, the Economic Information Daily reported in October.