A score of Shanghai’s legislative advisors have called for the merger of the local stock and futures exchanges to attract global companies and investors raising funds, as the city marked 30 years of explosive growth to become the elder sibling of the world’s second-largest capital market.
The merger was proposed by 20 delegates of the Shanghai People’s Political Consultative Conference (SPPCC), including the Shanghai Gold Exchange chairman Jiao Jinpu, the Shanghai chief of the Export-Import Bank of China (ExIm), and the Agricultural Bank of China’s city president Chen Qichang, according to a bill obtained by the South China Morning Post.
The delegates proposed the establishment of a holding group, under which the Shanghai Stock Exchange (SSE), the China Financial Futures Exchange, various securities depository and clearing companies as well as an options exchange can be built, according to the plan. Shares of the new holding company can either be listed in Shanghai, or in Hong Kong, according to their proposal.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
“Exchanges need massive funds and modern governance to participate in the global competition,” they said in their submission. “Amid the geopolitical shifts and the readjustment of China’s domestic economic structure, the creation of a holding group after consolidating the local exchanges is an effective way of revving up the internationalisation and opening-up of the country’s capital market.”
The proposal underscores the continuous search for the next paradigm shift in China’s capital markets, three decades after Shanghai - and its smaller sibling in Shenzhen - became synonymous with the nation’s experiments in market reforms. At US$11.56 trillion in combined market value, the two markets have grown from scratch to become the world’s second-largest in that span, behind the US whose history on Wall Street dates back to May 1792.
While many of the bills and submissions tabled at the annual meeting of the national legislature’s advisory body (CPPCC) may not materialise as law, they usually draw the attention of policymakers, and can provide guidance to future policies. The annual meeting of the Shanghai municipal-level legislative meetings started last Saturday and ends on Tuesday before the national meetings, usually held in the nation’s capital in early March.
“Shanghai Stock Exchange has yet to be the international market that welcomes companies and investors all around the globe,” said Yin Ran, a Shanghai-based angel investor. “Merging the various exchanges and creating a group is one thing, but it is more important to implement a set of rules and regulations that give the market forces a full play.”
The SSE traces its history to the late 19th century before the establishment of the People’s Republic. Trading was active when Shanghai was a city divided into various concessions controlled by foreign powers until 1949, and did not resume until 1990. In its current form, the SSE is run as a non-profit body, managed by government appointees from the financial sector of the civil service under the supervision of the China Securities Regulatory Commission (CSRC).
The Shanghai legislative advisors have called for the ownership of Shanghai’s different exchanges to be drastically restructured into a company with shareholders that can enable it to raise capital, improve its operations to achieve efficiency and profitability.
Publicly traded exchanges are not uncommon. Shares of Hong Kong Exchanges and Clearing Limited (HKEX), which operates the world’s most valuable financial market place, are listed on the city. The exchanges of London, Singapore, Malaysia, Japan and Australia are all publicly listed.
Owing to the country’s non-convertible currency and closed capital account, China’s financial markets offer a tiny window of access to foreign investors through a transborder channel called the Connect. Foreign companies, which have been in discussions to sell their shares in China for more than a decade, are yet to float their first stock in the country.