China Law Blog

The Wall Street Journal [subscription may be required] just did a story on how China is now NASDAQ's largest source of growth in new listings (h/t to Governance News Watch Blog).  Mainland China companies now account for 29 of about 3,300 companies listed on Nasdaq, said the president of Nasdaq International, Charlotte Crosswell.  "The exchange also lists around 50 firms from Hong Kong, a Chinese special autonomous region, putting China third behind first-place Israel and second-place Canada in having the most non-U.S. listings on the Nasdaq, Ms. Crosswell said:"

Obviously the growth is coming from China, and that's where we're really seeing the pipeline expand, in terms of numbers of companies coming to market," said Ms. Crosswell, who was in China's commercial hub to encourage the parade of new Chinese firms marching toward listings on America's largest electronic stock market.

The growth comes despite the potential disadvantage American exchanges face from the relatively strict rules on reporting and corporate governance required by the U.S. government.

This is all happening despite the U.S.'s 2002 enactment of the Sarbanes-Oxley Act, strengthening company oversight and reporting requirements:

However, Ms. Crosswell said Chinese companies tell her the regulatory hassles are offset by the added trust from investors. Chinese firms also have comparatively little difficulty implementing the requirements because they are often too young to have developed rigid corporate structures, she said.

"They believe it's a good thing to have," Ms. Crosswell said. "They're actually very happy they can prove they can comply with it because they think that's a good story for investors."

Nasdaq listings from China traditionally have come from the high-tech sector, but they are now expanding to include services, manufacturing, health care and media, she said.

Color me skeptical, but I have a hard time believing there are many Chinese companies out there both capable and fully desirous of complying with rigorous U.S. transparency laws.  On the contrary, I see a growth industry in shareholder class action lawsuits against Chinese companies, starting very soon. 

Update:  A reader directed my attention to a Wall Street Journal article, entitled, "Investing in China Demands Being Very, Very Careful, warning about many of the Chinese companies that do reverse mergers to go public in the United States.  Certainly worth reading.