Chinese companies drifting away from B share market

In addition to the well-known A share stock market, there is a B share market in Chinese mainland allowing investors to trade in foreign currencies. But this 20- year-old market is facing closure, as companies listed there look for alternative markets for re-listing. Although both China's authorities and listed companies hope to close the B share market, there is a lot to do before that can happen.

China's biggest property developer China Vanke announced Monday that it has approval from the China Securities Regulatory Commission to re-list Vanke B shares from the Shenzhen market to Hong Kong. The shares closed up 0.46 percent on the news. Other companies who have B shares in the Shanghai market are also looking at opportunities elsewhere. It has been some time since companies have been able to raise significant funds in the B share market.

Gui Haoming, market analyst of SWS Research Company, said:"The B share market was supposed to be a place to attract foreign investment, but its competitiveness and attraction are now much smaller than Hong Kong market. Companies listed there don't have much opportunity these days, so they want to leave for Hong Kong."

China opened the B share market two decades ago. To further open the Chinese market, however, the government opened the Qualified Foreign Institutional Investors or QFII system in 2003, allowing foreign investors to directly buy in the A share market. That is when the decline in the B share market began.

Cai Junyi, senior investment consultant of Shanghai Securities Company, said:" The major job now is to improve the A share market. If we try and improve the B share market at the same time, it will be hard to manage both."

Currently, the threshold for a company to be listed in Hong Kong market includes an annual revenue of 50 million Hong Kong dollars over three years and an estimated value of at least 200 million Hong Kong dollars. The problem is that many small companies now listed on the B share exchange may not be able to meet this threshold. Exchange rates during the transition will be another problem.

So far, there are 105 companies which list their B shares on both the Shanghai and Shenzhen exchanges, but their total trade volume makes up only about 0.3 percent of that in the A share market.