Global Trade Alert

On the 6th June, 2018, the China Securities Regulatory Commission announced a new system of 'Chinese Depositary Receipts' (CDRs), which allow domestic investors to buy shares in firms listed in foreign markets.

Previously, Chinese investors were limited to buying shares in their local listings only, meaning large Chinese companies would list on foreign stock exchanges in order to garner investment from within the PRC.

The system basically allows qualified broker agencies to purchase foreign shares on behalf of a domestic investor, giving the investor a newly created security that is listed on the local stock market, but tied to the foreign share. This allows domestic Chinese investors to buy securities that are listed abroad, through the CDR mechanism.

This marks a large source of potential investment for Chinese firms, who previously were effectively only able to be listed on foreign stock exchanges due to heavy regulations, thereby only allowing foreign shareholders to profit from investments in such Chinese firms. Domestic investors simply faced too many barriers to invest in such companies.

The plan is based on the popular American Depositary Receipt system, which, in 2016, had a market that was worth an estimated USD 2.9tn. Considering the size of the Chinese economy, the opening of this scheme represents a potentially enormous market also.