By Xie Fang
Yan Qingmin, vice chairman of the China Securities Regulatory Commission (CSRC), told the media on Thursday that Chinese investors may soon be allowed to trade Chinese Depository Receipts (CDR) in the A-share market, the Securities Times reported on Friday.
According to Yan, the CDR system will be an effective measure for solving such issues as the cross-border securities regulations. More importantly, it will also help bring in outstanding overseas-listed Chinese companies back to the A-share market.
"Without changing China's current legal system, the CDR system will be able to attract overseas-listed Chinese enterprises, even excellent foreign companies, to the A-share market," noted one unnamed market analyst with a Shanghai-based securities firm.
CDR, which resembles the American Depository Receipt (ADR), is a new type of financial derivative which could facilitate the fundraising of overseas-listed Chinese companies or even foreign companies in the A-share market. Meanwhile, it also offers Chinese investors an opportunity to invest in such Chinese high-tech companies as Baidu, Alibaba, Tencent and JD.com (collectively known as BATJ) which are currently listed in the U.S. stock market.
Given the existing regulatory requirements on profitability and equity structure for companies to get listed in the A-share market and a prolonged IPO process, a large number of Chinese unicorns have chosen to go public in the overseas stock markets such as the U.S and Hong Kong. Data show that there have been up to 181 Chinese unicorns listed in the U.S. stock market so far.
Analysts believe that the introduction of the CDR system will pave the way for these leading "new economy" enterprises to return to the A-share market.
There are also some concerns over the introduction of CDR. Since the issuance of CDR involves multiple financial institutions both at home and abroad, analysts suggest that the legislation on issues like investor protection must be improved.
