Chinese stocks fail to live up to hype
The very first listing of a Chinese company in an overseas exchange two decades ago generated enormous excitement among investors.
Demand for shares in Tsingtao Brewery was more than one hundred times greater than the number of shares on offer.
At the listing ceremony at the Hong Kong Stock Exchange, officials toasted the deal's success with the pale amber rice-flavoured lager, instead of the customary champagne.
Watching all the euphoria unfold from afar in the summer of 1993 was Fraser Howie, a Scotsman, who was then tracking Asian equities for Barings Bank in London.
"At that time there was obviously a lot of optimism about China," he recalls.
"Investors had spent the 1980s putting money in Japan. But that interest then turned to China. There was a China frenzy and it lifted Hong Kong markets."
Access to finance
The Tsingtao listing was followed in Hong Kong by Sinopec Shanghai Petrochemical, Guangzhou Shipyard International and Maanshan Iron & Steel - all state-owned flagship firms carefully vetted by the Communist Party as strong candidates to present to outside investors.
At the same time, the companies badly needed access to global financial markets to raise funds for expansion.
Listing in Hong Kong would have the additional benefit of pushing them to modernise, in order to comply with international standards of disclosure and governance.
The hope at the time was that the wave of new listings would mark the start of China's financial opening up to the world.
But on the 20th anniversary of the first Chinese share sale outside the mainland, market observers say the reality has fallen far short of those early, feverishly-optimistic expectations.
"It has ultimately been a huge disappointment," says Mr Howie, who has since worked in China and written two books about the country's stock market.
"If you were to tell people then that China still remains one of the most restricted markets in Asia 20 years later, they would have been very surprised," he adds.
"The financial sector has been extremely slow to open up. It's been an extremely tortuous process. And there is zero evidence that mainland companies listed in Hong Kong have improved their governance as a result of the listing process."
David Webb, a Hong Kong-based former investment banker and an independent director of the city's stock exchange, agrees.
He says the main culprit is the Chinese Communist Party's continued control over state-owned companies, which is particularly acute in so-called strategic sectors such as telecoms, banking and infrastructure.
"The government was still controlling these companies to subject them, in their view, to market discipline, when in fact it was still appointing the leadership of the companies as good party officials," says Mr Webb, a well-known shareholder activist.
He points to the poor performance of Chinese stocks over the past two decades, especially when compared with overall economic growth.
The MSCI China Index, which is a widely referenced indicator of Chinese market performance, has lost more than 30% of its value since the index was launched at the end of 1992.
The MSCI China H-share index, which groups mainland Chinese companies listed in Hong Kong, has performed better, by doubling in value since its inception.
But, during the same period, China's economy has grown by more than 1,700% to become the world's second-largest economy.
Mr Howie says that suggests the $950bn (£630bn) or so in capital that Chinese companies have received from Hong Kong and domestic Chinese investors over the past two decades has been seriously misallocated.
He attributes the poor performance to one-party rule, turf wars between competing ministries and the general lack of genuine financial reform.
What China wants
Over the past two decades, China's economic, political and diplomatic power has increased exponentially.
The banking crisis of 2008 has only highlighted the importance of the country's contribution to global growth and financial markets.
Large initial public offerings from China after the collapse of investment bank Lehman Brothers made Hong Kong the top global destination for fundraising three years in a row.
And because most Hong Kong firms are already listed, deal making from China is what drives the stock market here.
"Our value proposition for Hong Kong Exchange, and to some degree Hong Kong as an international financial centre, is to figure out what China needs and to try to provide it in a way that works for China, which is usually about control, risk management and quotas," says Romnesh Lamba, who is co-head of global markets at Hong Kong Exchanges and Clearing, which runs the stock exchange.
Last year, the Hong Kong Exchange purchased the London Metal Exchange, the world's top marketplace for base metals, for $2.2bn.
Critics believe the exchange overpaid.
But Mr Lamba says the purchase allows this city to diversify its offerings to Chinese clients beyond what the city already offers - which is mainly equities and, increasingly, bonds and foreign exchange.
Twenty years after the first Chinese company listed in Hong Kong, much has changed.
Thanks in part to all the enormous Chinese companies that have sought share sales here, Hong Kong is now a global financial heavyweight on a par with London and New York.
That is why, despite doubts about the efficiency with which some Chinese companies have used investment funding, financial centres around the world are still keen to attract new listings and business from China.