Clara Furse, the first woman Chief Executive of the London Stock Exchange, was appointed in February 2001, after serving as group chief executive of Credit Lyonnais Rouse 1998-2000. She spoke to China Economic Review in Beijing
Q: What have you done to attract Chinese companies to list?
A: The LSE was first to sign a memorandum of understanding with the Shanghai Stock Exchange back in 1994. In 1996 we signed another agreement with Chinese regulators that allowed Chinese shares to list in London. There are five Chinese companies worth almost US$10 billion listed in London from right across the sectors. This is my second trip here this year; our chairman was here earlier this year too. We're now going to bring road-shows to coastal areas of China. There are two types of Chinese companies we're targeting. There's the large state-owned firms and then there's the small and medium businesses. Only 1 percent of China's four million SMEs are listed so far. We're excited about the potential in this area.
Q: Have the LSE's efforts paid off?
A: From 2002 to 2003 there was a 59 percent increase in the value of Chinese stocks traded in London. We have 25 billion Chinese and Hong Kong shares trading on the Exchange. They're worth US$15 billion. Investor interest in Chinese shares in London has increased 93% year-on-year. There's a higher fee charged by investment banks to companies for bringing a company to New York than for London. And I just wonder, if you offer better services for half the price why don't [we] get all the business?!
Q: Do you see the day when the LSE will be on their radar in the same way New York is? What is the message you would like to leave with Chinese companies now contemplating a New York listing?
A: London is the natural destination for Chinese companies. Our investor base is broader and more serious. We have the world's best standards of market regulation and corporate governance. This should give confidence to both issuers and investors after the financial scandals elsewhere. London is open and pragmatic but it isn't politicized. It's purely a business decision, nothing more. We've got Sinopec, Beijing Datong Power, Zhejiang Expressway and Zhejiang Southeast Power on our first board. Jiangxi Copper is another company that has been performing very well in London. Then there are interesting companies like China Wonder, which is a food packaging materials maker. It's listed on the second board in London.
Q: Are you worried about the corporate governance standards of Chinese firms dragging London down?
A: It's unlikely you'll get major liquidity in London until you tap into the high quality investors. These are serious people, they do serious research. A New York investor by comparison often doesn't know what he's buying. We had a big build-up in Russian companies in the recent past. People may have been worried then. But these companies have had to make the grade. It clearly isn't in the interests of any company coming to London not to meet these high standards of governance.
Q: What advantages does London offer over other European exchanges?
A: London is a truly cosmopolitan city. London has more international funds under management than any other city. There are more branches and subsidiaries of foreign banks than any other financial centre in Europe or America. The LSE has 444 international companies from 58 countries listed on our markets. Our investor base is very broad. We have 45% of the world's international equity turnover, compared to just 22% for New York. London accounted for US$1.47 trillion in international trading value last year, well ahead of our competitors.
Q: Do you expect London will lead the way in Europe in terms of eventually attracting China companies?
A: Yes. Companies coming to Europe will find that access to all its potential investors is increasingly possible through a single listing. London has traditionally had a more open and competitive market model. Deminor Rating Services in Brussels put the UK top of the European corporate governance league table. We're way ahead of our rivals. This is important for Chinese companies in particular because a McKinsey survey has shown that investors are willing to pay a 25% premium for Chinese companies that can show good corporate governance practices. London is also the best gateway to the euro zone. Companies can list and trade in all the major currencies including the US dollar, Hong Kong dollar and euro.
Q: Chinese companies would presumably attract significant Chinese money – from funds and other sources as overseas investment rules are liberalized. Would you say Chinese investors are starting to come onto LSE's radar?
A: It's too early to map that. There's a large presence of Chinese banking and finance companies in London which will obviously be getting involved. We have a very strong story for China and we believe London is the best choice for Chinese companies and investors.
Q: Nasdaq and others have tried linking up with other exchanges. Have you explored doing anything with Hong Kong's exchange with a view to extending those links to Mainland exchanges?
A: No, this is something we've not been looking at.
Q: How do you view development of China's capital markets, looking at Shanghai and Shenzhen, as compared with LSE and AIM?
A: Change is happening quickly. The pace of change is very important. No market progresses smoothly. We see a development story that's very attractive and we're confident about that. It's hard to believe that the regulators here don't understand the issues. They're making big steps in the right direction. They need advisers but I'm sure they'll get there.
Q: Have you been involved in any cooperation programs with your Mainland counterparts – for instance, helping with exchange reform and corporate governance?
A: We have relations with the CSRC and we talk with them regularly. We offer advice on standards and best practice, yes. We also have relations with the exchanges – we've got a delegation coming soon from Shanghai to visit the LSE.
Q: LSE is a 50% shareholder in FTSE, have you explored avenues for getting index futures or other FTSE related products off the ground in China?
A: Yes, this is something we're exploring. FTSE is already very active in China. It has teamed up with Xinhua Finance. FTSE has introduced Exchange Traded Funds here, and that's an indication of the demand for Chinese stocks.
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