Initiative seeks to encourage more Chinese companies to list in London

Chinese companies need to improve their corporate governance if they are to earn the confidence of British investors, a new report has suggested.

Comprising London companies and business leaders, the China City Group, which released the report on Thursday, is also aiming to grow international fund investment into Chinese companies and encourage more Chinese companies to list on London markets.

Led by China Resolutions Chairman John McLean, the group said it believes Chinese regulatory authorities should better supervise Chinese companies and urge them to follow international corporate governance rules if they aim to list overseas.

"I genuinely believe that we can achieve momentum rapidly and that our shared vision will bring benefits for both China and the UK," McLean said. "What we are suggesting are practical steps to ensure that the UK has reasons to be confi dent in the 'China brand'."

The China City Group report is a response to declining investor confidence in London-listed Chinese companies in recent years.

There have been 110 Chinese company listings in London between 1997 and 2016. As of the end of July this year, only 35 of them remain. The majority delisted mainly due to their own corporate governance issues or due to investor distrust.

Another reason for London-listed Chinese companies to delist is that due to waning market confidence, the stock price of their companies becomes too low to keep the listing meaningful.

Lu Yingni, managing director of EcoLeap, a London-based consultancy that advises on Sino-UK deals, said many Chinese companies listing in London are relatively young and small and lack stringent corporate governance measures.

"Bad publicity resulting from some Chinese companies' fraudulent practices has significantly lowered investor expectations, so the willingness to buy Chinese stocks is low," Lu said.

"That creates a vicious cycle, meaning healthy high-growth Chinese companies are less likely to consider London listing."

McLean said China City Group will liaise with Chinese regulators, who can then help to supervise Chinese companies and hold them accountable to international investors.

But some critics doubt that such measures can be achieved.

Xue Haibin, managing partner of Zhong Lun Law Firm's London subsidiary, said it is unrealistic to expect Chinese regulators to perform such functions.

"It is a good idea to increase discussions with Chinese companies to make sure they understand best corporate governance practices, but enacting regulatory measures would be too much of a stretch," Xue said.

"As London is such a free market, any regulatory frameworks that single out Chinese companies would be unrealistic," Xue said.