The China Securities Regulatory Commission (CSRC) last night refuted international media reports that the securities regulator is studying the feasibility of making A and H shares convertible. The media reports triggered panic selling in the domestic stock market yesterday.
Bloomberg reported that Tu Guangshao, vice chairman of CSRC said the commission is studying the possibility of making a company's A and H shares exchangeable. The news agency said he made the comments on Wednesday to a journalist from Hong Kong on the sidelines of the 17th National Congress of the Communist Party of China. Furthermore, following passage of a resolution, current price gaps between A and H shares will diminish, the news agency said.
To date, all of the 48 companies with both A shares in the mainland and H shares in Hong Kong, have higher prices of A shares than the corresponding H shares. Based on this fact, several global investment bankers immediately said the report was good news for the Hong Kong market and discouraging news for the mainland.
In response, mainland's benchmark Shanghai Composite Index plunged 211 points or 3.5 percent by close, the largest single-day drop in a month. In contrast, Hong Kong's Hang Seng Index opened 700 points higher and closed up 166.34 points or 0.57 percent yesterday.
"The reports are distorted," said a person in charge of the press division of CSRC, First Financial News reported.
Reporters at the conference also said that Tu replied to the question by saying that because the domestic stock exchanges are not incorporated, current conditions are not sufficient for convertible A and H shares. There were no other questions on the issue at the meeting, the attendants of the meeting said.
Along with the rapid development of the domestic stock market, there has emerged heated debate over convertibility issues between the two markets.
Experts who know the two markets well said the transformation to convertible shares is a huge step forward in the opening up of China's capital account. However, exchange rate reform on renminbi, the Chinese currency, hasn't gone far enough for it to be applicable right now.
In addition, companies listed in the domestic A-share market have not completely finished the share split reforms. As a result, not all A shares are floatable, compared with H shares, all of which are floatable.
The A-share market has not established short-side trading mechanisms including bond and stock financing and index futures. The T+1 trading rule in the mainland also differs from Hong Kong. All these make the convergence of A and H shares impossible at this stage, analysts argued.