China has recently taken steps to expand the listing of its companies in the UK and Germany, but weak liquidity and geopolitical tensions remain major deterrents.
Important points:
Chinese listings under the five-year London Connectivity Program could be backed by a New Labor government interested in improving Sino-UK relations Chinese companies remain wary of European stock markets due to illiquidity programs in London, Zurich and Frankfurt, with no new listings recorded this year.
Written by Chen Ruzhen
At the China-UK Investment Conference in Shanghai in early December, London Stock Exchange Group (LSEG) Chief Representative for China John Edwards spoke favorably of Chinese companies seeking to tap international capital markets. “If you want to do business in Europe or the Middle East, I think the London Stock Exchange is the best choice,” Edwards told the audience in Mandarin.
He pointed out that the LSE is one of the world’s largest stock exchanges, with strong liquidity and a diverse investor base. “If you don’t want to list in the U.S. because of geopolitical concerns, you can come to London,” he said in a pitch to companies worried about future obstacles caused by President-elect Donald Trump’s inauguration.
His pitch comes a month before British Chancellor of the Exchequer Rachel Reeves’ planned visit to Beijing in early January aimed at closer financial ties. The announcement also follows recent visits by Shanghai Stock Exchange officials to London, Germany and Switzerland to promote the partnership.
The increased activity underscores the desire of both China and Europe to strengthen business and financial ties as the two countries grapple with weak growth and prepare for a possible trade war under the Trump administration. President Trump has threatened to impose tariffs on all exports from China and the EU to the EU. us
But sometimes it’s easier said than done. Despite several years of efforts to encourage Chinese companies to list on European markets in the UK, Switzerland and Germany, the efforts have shown little success. Reflecting that, the program between these three countries and China did not conclude any new listings in 2024.
Many Chinese companies have lost interest in listing on the LSE due to the strict procedures. These companies are also turning away from Switzerland due to a lack of liquidity, instead heading to traditional offshore destinations such as Hong Kong and New York, where the IPO market is recovering.
Many Chinese companies may also be concerned about the increasingly unstable geopolitical winds. Relations between China and Europe have been shaken over the past two years by China’s support for Russia’s war in Ukraine, with the EU fully supporting Ukraine.
On the trade front, the EU has also imposed tariffs of up to 45.3% on Chinese electric vehicle imports, amid claims by Brussels that China is unfairly subsidizing its auto industry. The China Association of Automobile Manufacturers (CAAM) highlighted the collateral damage, warning that the tariff decision poses “significant risks and uncertainties” to China’s business and investment in the EU.
Born in the “Golden Age”
The Shanghai-London Stock Connect scheme was launched in 2019, allowing listed companies in China and the UK to list on each other’s exchanges by issuing depositary receipts (DRs). It was born during a Sino-British “golden age” characterized by a rapid increase in cross-border trade and investment, and annual high-level economic and fiscal talks.
But the plan quickly lost momentum after then Conservative Chancellor Rishi Sunak vowed to end the “golden age” with China in 2022.
There are currently only six Chinese companies listed in London under the Connect system, and the first new listing since chemical manufacturer Zhejiang Yongtai Technology Co., Ltd. (002326.SH) issued free-floating shares in July 2023. has not been carried out. Other listed companies include Yangtze Electric Power (600900.SH) and Huatai Securities (601688.SH). The program has not yet attracted UK-listed companies to sell Chinese DRs for trading on China’s domestic A-share market.
Reuters reports that British Finance Minister Rachel Reeves’ two-day visit to Beijing next month is aimed at reviving high-level economic and financial talks that were recently suspended. The Financial Times said the talks will focus on financial services and will also discuss restarting the Shanghai-London Stock Connect.
The current Labor government has made improving relations with China one of its main foreign policy goals. And indeed, e-commerce fast fashion sensation Shane is reportedly in talks with the LSE about listing in London after being snubbed in his first choice New York. Such a listing, which could happen as early as next year, could raise billions of dollars and would likely be the largest for a Chinese company in Europe.
Switzerland’s downturn
The uphill climb that the new London program will face is mirrored by the China-Switzerland Connect program, the second oldest program of its kind linking Chinese companies with European stock exchanges. After the initial rush of Chinese companies to list on the Swiss SIX exchange, Chinese companies have largely abandoned that route due to lack of trading.
The Swiss exchange has so far hosted 17 Chinese listings, including Rep Medical (300003.SZ) and battery maker Sanwoda Electronics (300207.SZ). However, trading in the GDR is almost non-existent, and stocks often go for weeks or even months without being bought or sold.
Such Swiss East German stocks often trade at a discount to comparable stocks listed in Shanghai. As a result, arbitrage traders often trade these GDRs for the underlying A-shares, which they can then sell at a higher price in China for a quick profit. The last Swiss listing by a Chinese company was made a year ago, in December 2023, by Shenzhen Advanced Science and Technology Materials Co., Ltd. (300568.SZ).
Titan Win Energy (Suzhou) Co. (002531.SZ) and Zhejiang Sanhua Intelligent Controls Co. (002050.SZ) withdrew plans to list in Switzerland this month, citing changes in market conditions, and similar decisions. Sanhuasha said in a separate statement that it now plans to sell its Hong Kong stake.
Shenzhen-listed battery maker CATL (300750.SZ), which was also planning to list in Switzerland, is now reportedly considering listing in Hong Kong, where it could raise at least $5 billion. “With the positive momentum and growing investor confidence in Hong Kong’s IPO market, Hong Kong is becoming an increasingly attractive option for IPO applicants,” KPMG China partner Louis Lau said in a recent report. There is.
What does the future hold for Frankfurt?
Meanwhile, the Shanghai Stock Exchange recently announced that some Chinese listed companies are visiting Germany as well as the UK and Switzerland, promoting cross-border listing activities in all three countries.
The listing of Chinese companies in Germany dates back to 2018, when consumer electronics giant Haier sold global depositary receipts (GDRs) through the Frankfurt Stock Exchange. However, the program never gained much traction. Such cross-listings came as Shanghai Stock Exchange (SSE), Deutsche Börse Group (DBG) and China-German joint venture China Europe International Exchange (CEINEX) signed an agreement for cross-listing last month. New signs of possibility have begun to appear. A new Stock Connect scheme connects Shanghai and Frankfurt.
Also last month, Shanghai-listed Jinggang Solar Cell (688223.SS) announced plans to raise up to 4.5 billion yuan by selling GDRs on the Frankfurt Stock Exchange to fund business expansion.
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