Chinese Companies Go Back To Home Markets

More than 600 Chinese enterprises have listed on U.S. stock exchanges to gain access to America’s dynamic capital market. Now many want to abandon America and list at home to be part of an even more dynamic market: China’s.

They feel that they’re misunderstood in the U.S. and that this translates into depressed share prices. U.S.-listed Chinese companies trade at an average 30 percent discount to the Hong Kong Stock Exchange’s price-earnings ratio of 16 and at a nearly 50 percent discount to the Shanghai Stock Exchange’s average P/E of 22, says Jenny Zhan, who helps manage GMO’s $10 billion emerging-markets fund.

Yet repatriating could turn out to be complicated for Chinese companies. They will have to overcome U.S. regulatory hurdles to delist, notes Sherry Yin, a Beijing-based partner with law firm Morrison & Foerster in San Francisco. Not a single Chinese company has delisted in the U.S., and only one — Nasdaq-listed Harbin Electric, a maker of electric motors — has announced plans to do so. Nor would the companies necessarily be welcomed home with open arms. Beijing’s current policy is not to allow delisted companies to relist on Chinese exchanges’ A-shares main board. Instead, says Hu Ruyin, director of the Shanghai exchange’s research center, regulators are considering launching a special “foreign company board” next year.

“The Chinese government should open a direct channel for Chinese foreign-listed companies to come back to list in China to enjoy China’s prosperity,” Zhang Xiaoping, chairman of Nasdaq-listed SORL Auto Parts, told a gathering in Beijing last month of 200 senior executives of overseas-listed companies, arranged by the newly formed China Overseas Listed Corporations Association. The theme: “Returning Home.”

Regardless of the barriers, Chinese exchanges are preparing for a wave of returning companies, says Ren Guangming, Beijing representative of Hong Kong Exchanges and Clearing, which runs the Hong Kong stock exchange. Companies with China-related revenues that have delisted abroad and relisted in Hong Kong have seen their market capitalizations soar, he says.

“We Chinese asset managers know better how to differentiate between high-quality Chinese firms and those who aren’t high quality,” asserts Ben Zhang, a portfolio manager at Shenzhen-based China Merchants Fund Management Co.