In late 2006, the Chinese government implemented Ordinance 10, aimed at encouraging domestic listing on the Shanghai and Shenzhen markets. Due to Chinese currency regulations, Chinese mainland companies are unable to list abroad, and are instead required to list through foreign holding companies. Ordinance 10 prevents the formation of these holding companies without government approval, and effectively stems the overseas listings of Chinese companies. However, companies that had a foreign holding structure in place before the Ordinance 10 came into effect are able to list on foreign exchanges. In 2008, 17 Chinese companies raised £1.3 billion through London listings. To date, 68 Chinese companies in 20 sectors, including manufacturing, services, and clean technology, have listed on the London Stock Exchange (the “LSE”).
It is broadly recognised that the LSE is the gateway for Chinese companies wanting to get into the Euro zone and that this market is cost-effective. Chinese companies could seek partners in Europe and other regions of the world through the LSE. An additional benefit to Chinese companies listing on the LSE is that the strict listing requirements of the LSE would help Chinese companies improve their corporate governance and management.
However, despite an appetite for it to do so, there is no hard evidence to suggest that the government will lighten Ordinance 10 in 2009. During the Prime Minister’s and the London Mayor’s visits to China in 2008, their delegates met with the China Securities Regulatory Commission regarding the Ordinance 10. The hope is that Ordinance 10 will be lightened or cancelled in the near future to enable the future growth of Chinese companies. In the meantime, companies are encouraged to speak to their advisors to ascertain whether there is any means of doing deals in the UK, without breaching Ordinance 10.