China considering new bourse to attract overseas-listed firms

China is considering establishing a stock exchange to attract overseas-listed firms and bolster the global status of its onshore share markets, two people with knowledge of the matter told Reuters.

The country's State Council has asked the top securities regulator to lead studies on how to design the exchange that would target Chinese firms listed in offshore markets such as Hong Kong and the United States, said the people.

The government hopes the initiative would also lure marquee global firms such as Apple Inc and Tesla Inc, which would have the option of carving out local businesses and listing them on the new course, one of the people said.

The plan comes as Beijing and Washington remain locked in a rivalry that has featured moves by the US securities regulator toward expelling Chinese companies from US exchanges if they do not comply with US auditing standards.

About 13 US-listed Chinese firms including Alibaba Group Holding Ltd, Baidu Inc and JD.com Inc have conducted secondary listings worth a combined $36 billion in Hong Kong over the past 16 months, Refinitiv data showed.

With Sino-US relations showing little sign of easing, bankers and investors expect more such "homecoming" offerings.

Talks for the new exchange are in the early stages and a time frame and location are yet to be decided, said the people, who declined to be identified as the discussions are confidential.

The China Securities Regulatory Commission did not respond to Reuters' request for comment.

China has two main onshore exchanges, in Shanghai and Shenzhen, with a combined listed market capitalisation of 78.7 trillion yuan ($12 trillion).

In the first quarter, Nasdaq and New York Exchange topped the global bourses league table in terms of IPO proceeds, while Shenzhen's tech-focused ChiNext board and Shanghai's main board were ranked 8th and 10th, respectively, according to Refinitiv data.

The same rules govern initial public offerings as well as non-initial listings, in contrast to some other leading bourses, such as Hong Kong's, which offer waivers for secondary listings.

One option under discussion is upgrading an existing listing platform such as a smaller bourse in Beijing, said the people.

Beijing's municipal government has been lobbying for years to upgrade its equity exchange for small and mid-sized firms, known as the "New Third Board", to be home to US-listed Chinese firms, said one of the people and three other sources.

The securities regulator and a few government bodies have for about six month been studying the feasibility of such an upgrade, for which there is a "50-50" chance of adoption, said one of the three sources.

In a meeting with regulators and institutions in February, Cai Qi, head of Beijing city's Communist Party, called for the capital to lead financial reform and develop modern financial industry, the official Beijing Daily reported.

The Beijing government's media office did not respond to Reuters' requests for comment.

It is rare for foreign companies to raise funds through China's equity markets partly due to the country's strict control of the foreign exchange.

Moreover, government attempts to open up its stock markets to foreign firms and investors via the stock connect projects including the London-Shanghai Stock Connect have struggled to take off against a backdrop of geopolitical challenges.

China launched a trial program in 2018 to lure overseas-listed technology companies back home with Chinese depositary receipts, or CDRs. That effort has also struggled for success with most such firms opting for secondary listings in Hong Kong.

"The biggest question is whether the new exchange can be attractive enough," said one of the people. "Otherwise, it might just turn out to be another madcap scheme."