The chairman of the China Securities Regulatory Commission, Zhou Xiaochuan, has reiterated the Chinese government's commitment to greater foreign participation in the country's chaotic share markets.
Buried in an interview with the China Daily newspaper was a potentially extremely important suggestion. Zhou said that foreign companies would be able to list A shares. This means that Chinese investors would be able to invest in foreign companies who are financing their mainland operations through domestic sources of capital. The significance of this is that for it to be successful, a whole raft of other restrictions would have to be dismantled. Currency convertibility would have to be eased, onshore corporate banking would have to be opened up and the legal system would need a dramatic upgrade.
So while this is probably a few years off, it shows where the authorities think reform is going. According to them, it is going a very long way.
Chairman Zhou also reportedly said that foreign investors would be allowed to own up to 50% of Chinese companies - up from the 33% agreed for WTO membership. This would render the A and B share split virtually useless, so allowing a huge arbitrage opportunity.
The initial reaction of the market has been to buy up B shares - shares restricted to foreign owners. Because of the illiquidity of these stocks, they trade at steep discounts to A shares, which are only available to Chinese investors. Goes to show there is money to be made in reform.
