China steaming ahead - CIFIT - Common Talk Weekly

China steaming ahead
September 8, 2003
By Angela Lehmann & Enid Chen
Photo by Wan Xieyun

China is entering its third positive economic cycle and is currently the subject of a world record level of investment interest, the First Summit of World Stock Exchanges in Xiamen announced yesterday.

Michael Kuiack (right), Toronto Stock Exchange Representative, was presenting a speech.

Jonathon Mork - American merchant banker and Jerry Song, Managing Director, China.

Jonathon Mork, a senior management staff from a United States merchant banking firm, was among over 300 participants at Monday's conference.

"China is hot again and this time it will last. US investors have a better understanding of China today than they did even five or ten years ago. While western economic growth is expected to remain slow, China is expected to grow," he said.

Speakers at the summit represented stock exchanges from around the world including NASDAQ, Hong Kong, England, France, Canada, and Singapore. Each explained the benefits of their exchanges, the criteria for listing and how their exchanges work.

The summit provided a unique opportunity for international stock exchanges to come together and put forth information regarding their exchange works and the processes Chinese businesses need to take to begin trading.

NASDAQ China President, Harry Huang, delivered a speech on American capital market opportunities for Chinese enterprises. According to Huang, the advantages of the NASDAQ model are that it is more liquid, it is faster and provides better prices for investors and greater visibility for listed companies.

London Stock Exchange (LSE) representative, Jane Zhu, said London is the world's international finance centre and the gateway to European investment. More than 400 overseas companies are listed on LSE, including five Chinese companies. Zhu described the two main markets which make up the LSE - the Main Market, for mature companies, and the Alternative Investment Market (AIM) for smaller and growing companies. AIM assists such companies by providing cheaper costs and less requirements for listing. Eventually, companies listed on AIM can graduate to the main market.

The Toronto Stock Exchange has developed a similar market for earlier stage companies. The TSX Venture Exchange makes listing simpler and cheaper and, according to Toronto representative Michael Kuiack, this exchange means companies can begin trading on the Canadian market within six to nine months. "

"The Venture Exchange is ultimately a stepping stone," he said. "Companies want the advantages of being listed on the stock exchange and they can use this to achieve an ultimate goal of maybe going on to London or NASDAQ or another senior exchange. For a Chinese company it is good because you can get on there, fulfil the listing requirements, raise money, get some exposure in the States and in Canada and then eventually graduate."

There are currently 15 Chinese companies listed on the Canadian stock exchange. One such company, Dragon Pharmaceuticals, a Chinese generic drugs manufacturer, began by listing on the TSX Venture exchange and is now trading on the main market of the Toronto stock exchange. Kuiack also described a Beijing-based mining company, South West Resources, which began on the junior exchange and now have a capitalisation of over one billion RMB.

The summit highlighted one of the main hurdles for Chinese companies seeking overseas investment - exposure and marketing. Mork said that even though Chinese companies are now doing a better job of marketing their stocks, they must take a pro-active role in getting known to the mainstream US economy.

"In the US, companies have long understood the value of owning their own sales channel. If I owned a factory, I would want to have my own salesmen that sell my products to my customers. In China, a lot of the factories rely on the customers to come to them. That makes them vulnerable because they don't own their customer. They don't really have direct relationships with customers.

"Therefore the customer could decide to use a different factory next year because they gave them a better price. All of a sudden your factory is half unused. Until now, China has been so dependent on trade intermediaries, that in effect, match up the customer to the factory. This makes Chinese companies vulnerable," Mork explained.

"Now Chinese companies are realising that if they have their own US distribution team that answer to them that they could have much better sales predictability. Packaging and marketing your company is vital and Chinese companies are beginning to acknowledge this and change the way they approach customers."

Such changes in the way Chinese companies are approaching business and obtaining capital in foreign markets means there is currently a world record level of interest in China. As Mork commented at the summit, "China is steaming ahead."