Meanwhile, overseas stock exchanges are sounding the bugle ahead of their advance into the Chinese market.

Late last month, when the China Economic Summit 2005 was held in Beijing, senior officials from eight reputable overseas stock exchanges visited the Chinese capital to launch their campaigns aimed at attracting developing Chinese enterprises to list in the bourses. Many international providers of financial services also attended the summit.

Many corporate executives and global investors are influenced by the 'China phenomenon' when making business decisions.

The considerable growth rate, a motivated work force and enormous market size are worth further investigation, says Robbin A.D. Bishoen, director of global operations with the International Center for Corporate Strategy Development (ICCSD).

The Holland-based strategy institute serves the global community including governments, service providers and companies, with advice in strategic finance, legal and other strategy issues.

On the other hand, the current sluggish domestic market makes it very hard for Chinese companies to launch initial public offerings (IPOs) or additional share issues, says Dong Chen, a senior analyst with China Securities.

For example, there is a striking contrast between the offerings of two big companies in different markets.

Earlier this month, Shenhua Energy, the Chinese mainland's largest coal producer, launched the world's largest IPO so far this year.

It floated its H shares in Hong Kong's stock exchange with the aim of raising a maximum HK$28.34 billion (US$3.63 billion).

The trading debut is set for Wednesday, and market sources say the global offering is already over-subscribed.

In contrast, Shanghai-listed Baoshan Iron & Steel Co Ltd (Baosteel), China's largest steel maker, launched its additional share offer plan on April 15 with the aim of raising 25 billion yuan (US$3 billion).

Baosteel's announcement hit the stock market, as investors were increasingly concerned about large counters siphoning off much of the market's funds.

The benchmark Shanghai composite index slid 1.4 per cent on April 15, and Baosteel's shares fell 1.3 per cent, to 6.14 yuan (74 US cents). Last Tuesday, Baosteel's shares declined to 4.73 yuan (57 US cents).

The overseas market is more active and has a lot of strategic investors, and real blue chips can easily realize their funding goals there, says Dong.

Moreover, overseas markets have many advantages over the domestic market, in terms of regulations, market size, listing process and costs, says Xu Gang, general manager of CITIC Securities' research department.

Capital markets in the United States are multilevel, which offers companies of varying sizes access to capital.

And the US market offers very high price-to-earning (P/E) ratios to Chinese enterprises, says Tim Halter, president of Halter Financing Group (HFG).

He says HFG estimates the P/E at 30 for Chinese enterprises listed in the United States, while the average P/E in United States is only 18.

Moreover, there is a new model for Chinese companies to raise capital in the United States cheaply and quickly, says Halter.

The new model is 'reverse merger,' or alternative public offering (APO). That's when a private company buys the empty legal shell of a defunct public company, creating a new company.

The private company provides the assets and the liabilities. The public company provides the legal licence to trade the company's equity on public markets through common stock.

Compared with IPO, APO is cheaper, less risky and faster. It only takes 90 to 120 days for a company to go public.

Although Chinese companies seeking overseas capital often launch their public offerings in Hong Kong, the United States or Singapore, due to their familiarity with those markets, European stock markets and service providers, aware of the market potential in China, are coming to fight for the Chinese clients.

Chinese companies have vast experience in entering the US market. However, due to the great diversity in Europe, it is difficult to penetrate that market.

Additionally, Chinese companies have experienced problems as they tried to market their products, as they were perceived to be of low quality by European customers, says Bishoen.

This situation is changing gradually. European consumers recognize that Chinese products are becoming better, and Chinese companies have the support of the growing Chinese communities in Europe.

Also, European stock exchanges, service providers and investors have become familiar with Japanese and Korean companies, and have become aware of the rise of Chinese enterprises, Bishoen says.

The growing number of Chinese IPOs in foreign markets and expansion of Chinese businesses in Europe are causing European exchanges and financial firms to profile themselves in China to attract potential clients, he adds.

Last year, the London Stock Exchange (LSE) established its presence in Hong Kong and launched a marketing effort to promote its Alternative Investment Market (AIM) for Chinese growth companies. Currently, AIM has about 10 China-based companies in the pipeline.

Frankfurt's stock exchange Deutsche Boerse AG (DBAG) has also made a sound move into the Chinese market, by co-operating with Shanghai's stock exchange.

Last November, it agreed to provide 'the next-generation trading platform' to Shanghai's stock exchange, using the DBAG Xetra electronic trading platform technology.

Other European stock exchanges are either developing their China strategies or are busy with their merger attempts.

While seeing highly developing companies listing overseas, some investors have complaints.

'Many blue-chip firms list abroad, which leaves less-valuable ones for us to invest in,' says Jiang Wen, a trader in Beijing.

Reform is crucial, especially if a cure to the domestic market's ailment is going to be found.

(China Daily 06/13/2005 page4)