Market reform has gradually opened up China’s economy, to the extent that it’s now the largest recipient of foreign direct investment in the world. With its entry into the World Trade Organization in December 2001 – after 15 years of effort – and a growth rate of 8 percent last year, China now has the world’s most dynamic large economy.
And more changes lie ahead. According to official figures, the economy is set to grow by 7-8 percent in 2003-2004. And with the proposed plan for investment in domestic shares by so-called qualified foreign institutional investors (QFIIs), the doors to China’s capital market will soon be thrown wide open.
But can China meet the high expectations of the international equity markets? And is it ready for the rules and regulations, and the strict demands on corporate governance that will accompany foreign interest? IR magazine’s second annual Greater China conference, originally scheduled for May 14-16 and now moved to November, will explore these issues with over 40 expert speakers.
Tim Croasdaile, managing director of Apco Worldwide, will address the implications of US-style corporate governance for Chinese companies. ‘Any company wanting to raise capital in the US will need to comply with the regulations,’ he says. ‘More importantly, given the recent corporate scandals, institutional investors around the world are focusing on governance practices as risk factors in investments.’
JPMorgan’s Kenneth Tse will chair an ADR workshop. As he points out, China is one of the most important ADR markets in the Asia-Pacific region, but its growth has been hampered by the global downturn and a sluggish equities market. ‘In the long term however,’ Tse says, ‘the two major drivers – privatization of state-owned enterprises and the emergence of a new breed of companies that aspire to become truly global companies – remain intact.’
‘China’s privatization plan,’ Tse continues, ‘remains a high priority policy, and will be the main driver for continual growth of the China ADR market.’ As apprehension about the Sarbanes-Oxley Act subsides over time, Tse predicts, there will be a continuous flow of large companies seeking listings on the NYSE and Nasdaq.
For companies that have outgrown their domestic markets or aspire to become international companies, an ADR listing is a step forward into the global arena. But for Chinese companies to succeed in the global arena, they will have to compete with international companies for investment capital, attention and research coverage. And of course they will have to improve their corporate governance and investor relations.
In response to this, IR magazine conferences provide expert advice on best practice in all areas of IR. Alison Chow, CEO of IRAsia, will present a session on how best to use the internet. ‘It is important for technologies to work for a company, not the other way round,’ she explains.
Chow hopes the conference will increase the visibility and understanding of IR in China at this important time. ‘Chinese enterprises need to become aware of the necessity of IR, and the benefits it brings, not only to the individual company but to the nation as a whole,’ she concludes.
Starting to look outside may prove to be challenging for Chinese companies, but the rewards to be reaped are immense. Perhaps they should heed Deng Xiaoping’s words: ‘It doesn’t matter if a cat is black or white, as long as it catches mice.’
