China’s European Stock Market Ambitions Stumble
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China’s recent attempts to increase its corporate presence on European stock exchanges have met with important obstacles, highlighting the complex interplay of geopolitical tensions and market realities.
While initiatives like the Shanghai-London Stock Connect program, launched in 2019, aimed to facilitate listings through depositary receipts (DRs), the results have been underwhelming. The program, initially hailed as a symbol of a “Golden Era” in Sino-British relations, experienced a significant slowdown after then-Prime Minister Rishi Sunak’s declaration in 2022 that this era had ended. This shift reflects the broader challenges facing Chinese companies seeking to access European capital markets.
London’s Appeal, despite Challenges
Despite the hurdles, the London Stock exchange (LSE) remains a focal point for Chinese companies. Jon Edwards, the LSE’s chief China representative, recently emphasized the exchange’s strengths at a Shanghai conference, stating, ”If you want to develop your business in Europe, or in the middle East, we think the London Stock Exchange is your best choice.” He further underscored the LSE’s size, liquidity, and diverse investor base, adding a compelling argument for companies hesitant about listing in the U.S.: “If you don’t want to list in the U.S. due to geopolitical concerns, you can come to London.”
This proactive outreach coincides with a planned visit by British Finance Minister Rachel reeves to Beijing in early January, signaling a renewed push for stronger financial ties. Similar efforts are underway, with Shanghai Stock Exchange officials recently visiting London, Germany, and Switzerland to explore collaborations.
Geopolitical Headwinds and Market Realities
Though, the path to increased Chinese listings in europe is far from smooth. In 2024, programs designed to attract Chinese companies to London, Zurich, and Frankfurt yielded no new listings. This reflects a confluence of factors. Many Chinese firms find the LSE’s listing procedures overly stringent. Others are deterred by the lack of liquidity in Swiss markets, opting instead for the more established, albeit volatile, markets of Hong Kong and New York.
The escalating geopolitical tensions between China and Europe further complicate matters. China’s stance on the war in Ukraine has strained relations, while EU tariffs of up to 45.3% on Chinese electric vehicle imports, citing unfair subsidies, add another layer of uncertainty.The China Association of Automobile Manufacturers (CAAM) has warned that these tariffs create “enormous risks and uncertainty” for Chinese businesses operating and investing in the EU.
Currently, onyl six Chinese companies are listed in London under the Stock Connect scheme, with Zhejiang yongtai Technology Co. being the last addition in July 2023. Other notable listings include Yangtze Power Co. and Huatai securities. The program has yet to attract any UK companies to list in China.
The future of Chinese investment in European markets remains uncertain, contingent on navigating the complex web of geopolitical risks and market dynamics. While efforts to foster closer ties continue, the challenges are substantial, and the path forward remains unclear.
Chinese Companies Eyeing European Stock Markets: A mixed Bag of Successes and Setbacks
Chinese companies are increasingly looking to European stock markets to raise capital and expand their global reach. Though, the experience has been far from uniform, with some ventures thriving while others falter. Recent activity reveals a complex picture of opportunity and challenge.
The UK, under its new Labor government, is actively pursuing stronger economic ties with China. This push is evident in the upcoming visit by chancellor of the Exchequer Rachel Reeves to Beijing next month, aimed at reviving high-level economic and financial talks, including discussions on resuming the Shanghai-London Stock connect, according to reports from Reuters and the financial Times.
Adding to this renewed interest, e-commerce giant Shein is reportedly exploring a London Stock Exchange listing, potentially becoming the largest Chinese company listing in Europe and raising billions of dollars. This follows a reported rejection from the New York Stock Exchange.
Challenges in Switzerland
The China-switzerland Stock Connect program, one of the oldest such initiatives, offers a cautionary tale.While initially attracting a wave of Chinese listings on the SIX Swiss Exchange, including companies like Lepu Medical (300003.SZ) and Sunwoda Electronic (300207.SZ), trading volume has become extremely low, with shares often going weeks or months without transactions.These GDRs frequently trade at a discount to their Shanghai-listed counterparts, leading to arbitrage opportunities that further depress trading on the Swiss exchange.
The lack of liquidity is underscored by the fact that the last Chinese company to list in Switzerland was Shenzhen Senior Technology Materials co. (300568.SZ) in December 2022. Titan Win Energy (Suzhou) Co.(002531.SZ) and Zhejiang sanhua Smart Controls Co. (002050.SZ) both recently scrapped their Swiss listing plans, citing unfavorable market conditions. Sanhua, in a separate proclamation, stated its intention to pursue a Hong Kong listing instead. Even CATL (300750.SZ), a major battery maker, is reportedly reconsidering a Hong Kong listing rather of its planned Swiss offering, potentially raising at least $5 billion. “With positive momentum and increasing investor confidence in the Hong Kong IPO market, the city is becoming an increasingly attractive option from IPO applicants,” noted KPMG China partner Louis Lau in a recent report.
A New Dawn in frankfurt?
While the Swiss experience has been underwhelming, there are signs of renewed interest in other European markets.The Shanghai Stock Exchange recently facilitated visits by Chinese companies to the UK, Switzerland, and Germany to promote cross-border listing opportunities. While German listings of Chinese companies date back to 2018,with Haier’s GDR offering in Frankfurt,the market has seen limited activity until recently. A new stock connect scheme linking Shanghai and Frankfurt, signed last month by the shanghai Stock exchange (SSE), Deutsche Börse Group (DBG), and China Europe International Exchange (CEINEX), aims to revitalize this market.
This renewed optimism is exemplified by Jinko Solar Co.(688223.SS), which announced last month its plan to raise up to 4.5 billion yuan by selling GDRs on the frankfurt Stock Exchange to fuel its expansion. “Jinko solar Co. (688223.SS) said it plans to raise up to 4.5 billion yuan selling GDRs on the Frankfurt Stock Exchange to fund expansion.”
The future of Chinese companies on European exchanges remains uncertain, but the recent activity suggests a dynamic and evolving landscape. The success of these ventures will depend on a variety of factors, including regulatory environments, investor sentiment, and the overall global economic climate.
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Chinese companies’ pursuit of listings on European stock exchanges has yielded mixed results, highlighting the challenges and opportunities in this complex landscape.
London: An Alluring Prospect, But With Hurdles
World-Today-News.com Senior Editor: Dr. Chen, you’re an expert on Chinese firms’ international expansion strategies. What draws Chinese companies to the London Stock Exchange?
Dr. Mei Chen, Professor of Finance, University of Hong Kong: The LSE remains a prestigious and globally recognized exchange. Its deep liquidity, diverse investor base, and reputation for strong regulation appeal to companies seeking international capital and visibility.
Senior Editor: Yet, the LSE hasn’t seen a wave of Chinese listings recently.
dr. Chen: Indeed. the geopolitical climate is a factor, and the listing process itself can be quite demanding. Some companies might find it more straightforward to pursue listings in Hong Kong or even New York.
Seeking Alternative Routes: Frankfurt’s Potential
Senior Editor: We’ve seen some activity in Frankfurt, with Jinko solar planning a GDR offering. Is this a sign of a shift?
Dr. Chen: It could be.The new Stock Connect scheme between the Shanghai and Frankfurt exchanges aims to facilitate cross-border listings.While initial activity has been limited, it opens a new pathway for Chinese companies seeking European access.
Geopolitical Tensions: A Major Roadblock
Senior Editor: Clearly, tensions between China and the West are playing a role. How big of a factor is this?
Dr. Chen: It’s a notable challenge. the war in Ukraine, trade disputes, and concerns about Chinese technology companies have created a climate of uncertainty. This makes it more challenging to investors and regulators in Europe to embrace Chinese companies.
Looking ahead: A Uncertain Future
senior Editor: What dose the future hold for Chinese companies on European exchanges?
Dr. Chen: The outlook is uncertain, but it’s not necessarily bleak. Ultimately, success will depend on a combination of factors:
Improved geopolitical relations: A reduction in tensions woudl create a more favorable surroundings.
Regulatory clarity: More obvious and streamlined listing processes would encourage participation.
Chinese companies’ commitment: Firms will need to demonstrate strong governance and clarity to convince European investors.
Continued economic integration: Deeper economic ties between China and Europe would promote greater investment flows.
* Senior Editor: Thank you, Dr. Chen. Your insights are invaluable as we watch this evolving landscape unfold.