Practices need to improve, says UK body

Group links corporate governance to more foreign investments and listing in London

Chinese companies will have to improve their corporate governance if they are to earn the confidence of United Kingdom investors, an influential report has revealed.

The China City Group, which comprises business leaders and companies from the UK, aims to stimulate international investment in Chinese companies, as well as encourage them to list on the London markets.

Led by John McLean, chairman of China Resolutions, an investment management firm, the group believes Beijing regulatory authorities should better supervise Chinese companies.

It urged them to follow international corporate governance rules if they aim to list overseas.

"I genuinely believe that we can achieve momentum rapidly and that our shared vision will bring benefits for China and the UK," said McLean, who is chairman of China City Group.

"What we are suggesting are practical steps to ensure that the UK has reasons to be confident in the 'China brand'," he added.

The report is in response to declining investor confidence in London-listed Chinese firms.

There were 110 mainland company listings in London between 1997 and 2016.

By the end of last month, only 35 remained. The majority delisted due to corporate governance issues or a lack of investor trust.

Another reason for delisting has been poor share price performance in a bull market because of waning market confidence.

Lu Yingni, managing director of EcoLeap, a London-based consultancy that advises on Sino-UK deals, stressed that many Chinese companies listed in London are relatively young and small.

They also lack stringent corporate governance policies.

"Bad publicity resulting from some Chinese companies' fraudulent practices has significantly lowered investor expectations, so the willingness to buy Chinese shares is low," Lu said.

"That creates a vicious cycle, meaning healthy, high-growth Chinese companies are less likely to consider a London listing," Lu added.

McLean confirmed that China City Group will liaise with Chinese regulators, who can then help to supervise mainland companies and hold them accountable to international investors.

But many in the city of London doubt that such measures can be achieved.

Xue Haibin, managing partner of Zhong Lun Law Firm's UK subsidiary, felt it was unrealistic to expect Chinese regulators to perform these functions.

"It is a good idea to increase discussions with Chinese companies to make sure they understand best corporate governance practices," Xue said. "But enacting regulatory measures would be too much of a stretch.

"As London is such a free market, any regulatory frameworks that single out Chinese companies would be unrealistic," Xue added.