On the evening of April 17, RDCY Seminar Series No.110 was held in Chongyang Institute for Financial Studies at Renmin University of China (RDCY). Zheng Zhigang, a professor at the School of Finance at Renmin University of China and senior fellow of RDCY was invited to give a lecture on the global capital market competition and the reform of China`s listing system, analyzing the measures to attract the return of the unicorn companies.

In his speech, Professor Zheng said that China’s unicorn companies represented by Alibaba, Baidu, Tencent have gone overseas for listing, which call for the reform of China’s listing system. The capital markets, who attract these new economic enterprises to go public, can be injected new vitality into their future development, he said.

Professor Zheng outlined the global background of the reform on the listing system. In December 2017, the Hong Kong Stock Exchange announced that it will allow the companies that embrace the framework of "the same shares with different rights" to list in the future. In January 2018, the same system was introduced in the Singapore Stock Exchange. At present, major global securities transactions have reformed their existing listing systems in order to adapt to the changes in the new capital markets and attract new economic companies to go public.

On March 30, 2018, China announced a pilot program to support innovative companies` domestic listing and issuance of China Depositary Receipts (CDRs), aiming to attract the unicorn companies to return domestic stock market. The issuance of CDRs has been widely accepted by the market.

Professor Zheng said that CDR is a financial tool and its launch is undoubtedly of great significance. The issuance of CDRs broadens the investment and financing channels of domestic investors, and also enables Chinese mainland investors to indirectly share the development dividends of overseas unicorn enterprises, indicating that the listing system of China`s capital market has sounded the clarion call for reform.

However, he said, the issuance of CDRs does not mean that the unicorn companies are truly return to domestic A-shares. In addition, there exists several problems for the CDRs as a wealth management tool, such as the regulatory vacuum and governance vacuum.

Professor Zheng said that the reform of the listing system involves many issues. In order to truly realize the return of unicorn companies, four basic reforms should be undertaken in the future.

First, to accept the "same shares with different rights" framework listing in the A-share, and even allow the unfair voting rights. Second, the abolition of requirements that the listed company make profits, focusing on corporate growth potential, rather than high market profitability threshold. Third, reducing the restrictions on the proportion of foreign ownership. Fourth, the VIE framework should be allowed to go public in the future. VIE is a variable stakeholder.

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