Confidence Crises Threaten Chinese Listings Abroad

At the government level, Chinese authorities have acted to maintain the image and interests of Chinese businesses as well as those of the country at large. They use multiple channels to clarify situations and avoid media spin. Different coping strategies are deployed in light of the specific situations of Chinese firms, to prevent individual scandals from snowballing into a conspiracy to sabotage the Chinese economy.

Naturally, to preclude another confidence crisis the country must establish and improve its public relations mechanism for economic affairs and crisis management.

First, while encouraging companies to participate in economic globalization, the Chinese government should include overseas listings in its economic planning, improve bilateral/multilateral cooperation mechanisms, and provide professional services for Chinese companies in the fields of overseas listing and investment. Relevant authorities and agencies could provide firms with standard training in investment policies and laws in target foreign countries, preparing them to do business overseas and helping them formulate strategic plans.

Second, China should step up its efforts to improve the domestic capital market, so that more local companies would choose to be listed at home. For example, the country can provide them more financing channels by enhancing its multi-level capital market system. Meanwhile, supervisory bodies should strengthen institutional contruction regarding share trading, internal control of securities companies, delisting, and restitution for investors, among others. Any company that is caught cheating must be brought to justice.

Third, China should help its enterprises improve their abilities to thrive and survive in international capital markets. The country should set up a sound corporate credit system in line with international practices and conforming to domestic conditions and market rules. In this way Chinese enterprises will become acquainted with foreign capital markets, develop greater awareness of public relations, hone their ability to communicate effectively and learn to protect themselves through legal means in foreign markets.

Xiang Anbo is an associate research fellow with the Enterprise Research Institute under the Development Research Center of the State Council.