The Story
After four years of preparations, the Shanghai-London Stock Connect launched on Monday.
Foreign companies can now list in mainland China for the first time.
The programme allows Chinese companies to raise money via the London Stock Exchange, while companies listed in Britain can sell existing shares to Chinese investors*.
Impact on Businesses and Law Firms
The London-Shanghai Stock Connect is a message from Britain that London will not lose its place as a leading financial centre post-Brexit.
It’s also a message from China that its markets will continue to open up despite its trade war with the US and slowing economic growth. The country has sought to demonstrate this commitment by increasing investor protections and opening up more sectors for investment.
It’s not easy for law firms to break into China. There are cultural differences, strict government regulations and pressures on fees. It’s also very competitive; there were 174 international law firms in China in 2012. Guess how many Chinese law firms were registered in China in 2012? 19,361.
But a presence in China benefits a firm’s brand and prestige. It sends a signal to the market that they are trulya global law firm. The move also attracts foreign clients looking to invest in China; they’ll need a law firm to walk them through the process, negotiate with Chinese counsel, comply with tough regulatory restrictions and protect their intellectual property.
There’s also promise for the foreign law firms that are able to form relationships with Chinese companies early. Over the coming decades, China’s outbound investment will rise as it moves away from an economy driven by cheap manufacturing towards technology and innovation. Foreign law firms have a competitive advantage here. They are global and they understand how deals are done in Western markets. They know deal structures and how to negotiate M&A documents. That’s attractive to Chinese businesses that want to go global.
*This is through trading depositary receipts, which represent shares in a company. You can read more about how this works here: https://www.thecorporatelawacademy….-nowhere-a-guide-to-chinas-financial-markets/
