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Macro View | From the International Board to International Investment Enterprises IPO

The international board is a freely convertible part of the RMB. The constructing process is relatively long, however, the foreign-invested enterprises IPO is much simpler.


★International board is Still Under Review★

Approximately from 2007 and onwards, discussions began of allowing foreign companies to issue and exchange shares in the Chinese capital market (generally referred to as the establishment of "international board").

In May of 2012, the Development and Reform Commission and 8 other ministries jointly issued "On accelerating the cultivation of international cooperation and new competitive advantages guidelines." One of the main objectives is to support qualified internationally-invested enterprises to launch their IPOs in Chinese and international markets. To this end, these "guidelines" show that government will publish the rules for foreign enterprises to issue shares, bonds, funds, etc., under RMB stock rules. Additionally, the government will launch timely pilots of foreign enterprises into RMB stock territory.

Possibly related to the performance of the domestic stock market, by the end of 2013, regulators said the conditions are not mature yet for the“international board.”

Nonetheless, the discussion of the international board is still ongoing. The People's Bank of China wrote in their 2015 annual report "Renminbi Internationalization" section, that China will continue to adhere to increasing financial reform and expanding the external market of financial markets, such as the bond market and the stock market; while further improving the RMB convertible. To further promote the two-way opening of the capital market is one of the key tasks for the next period. Specific measures include allowing high-quality foreign companies to issue shares in the territory, considering the introduction of convertible stock certificates (CDR), further expanding China’s bond market opening, and so on.

As a result of the impact of unsolved problems in legal and financial areas, regulatory officials stated in February of 2017 that the international board has been under study, however, there’s no timetable in the relevant securities market conference.


★Foreign-Invested Enterprises Listed on the A-share Maybe the Primary Solution★

On January 17th, 2017, the Federal Council released the “Notice on Several Measures to Expand the Active Use of Foreign Capital in China’s Market”, and pointed out that China’s use of foreign capital is facing new tasks and demands. Specific measures include supporting internationally-invested enterprises to broaden their financing channels. Foreign-investment enterprises can launch their IPO on the main board, SME board, GEM listing, NEEQ, and issue corporate bonds, convertible bonds, and non-financial enterprises debt financing instruments for financing.

The 2017 "Government Work Report" clarified that the government will be actively opening the Chinese money market and increase support for internationally-invested enterprises to IPO in China’s domestic market, issuing bonds, and so on.


★Differences Between the International Board and Foreign Investment Enterprises★

Allowing foreign enterprise financing in China’s capital market (such as an international company launching an IPO in the United States) is not only a strong symbol of China’s capital market but also an important element to becoming an international financial center. A closed capital market, that rejects the financing of foreign enterprises in the capital market is essentially weak.

The proposed and envisioned by the China International Board is an important part of RMB’s use of flexibility and free exchange of Capital accounts. Up to now, most of China's capital account transactions have been freely convertible, and other accounts that aren’t freely convertible are mainly related to both personal cross-border investments, as well as non-residents issuing stocks and other financial instruments in the domestic market. The future of RMB internationalization is expected to be mainly in these two areas in order to achieve a breakthrough. Among them, the already opened Shanghai-Hong Kong and Shenzhen-Hong Kong paths are currently the main methods in personal cross-border investment. The future Qualified Domestic Individual Investor (QDII) may be published as a qualified domestic individual in the investors' system.

Unlike the international board which mainly engages in the listing of international financial enterprises, internationally-invested enterprises belong to the enterprise registered in the local country. These enterprises are the same as domestic enterprises and their revenue is included in the gross domestic product (GDP). Therefore, attracting foreign investment is a long-term policy for almost all countries or regions of the government's economic policy. In addition to the special provisions, internationally-invested enterprises and domestic enterprises face the same legal regulations, making foreign-invested enterprises more interested in launching their IPO.

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