Shang Fulin, chairman of the China Securities Regulatory Commission (CSRC), last month said the regulator prefers red-chip companies to come to the mainland stock market by issuing A shares directly, rather than through CDRs.

"There are only certain particular technical obstacles for the direct listing model," Li of Renmin University said. "Only when all these problems are overcome can red chips start moving."

It will, however, take a while to iron out the technical obstacles in question.

For example, the par value of an A share and a red-chip share is different as all renminbi-denominated shares have an equal par value of 1 yuan. But red-chip shares are not renminbi-denominated, and have different par values. For some it may be HK$0.1, for others HK$0.5.

"Red chips should decide whether to change their existing par value in accordance with the current foreign exchange rate or to follow the mainland rule to issue A shares with the same par value," an industry insider said.

Besides par value, Zhou Dao, an analyst with Southwest Securities, said another obstacle is that the fiscal year is defined differently for red chips and A shares.

According to the mainland's accounting law, all companies should count their fiscal year from January 1 to December 31, while red chips are in line with the international norms and can choose their fiscal year freely.

"The regulators should clarify this point before red chips are listed on the mainland," Zhou said.

To iron out these differences, the regulator is drafting detailed rules to guide red chips listing on the mainland market, laying down the rules involved in each stage of the listing procedure such as securities depository, clearing, issuing and trading. The rules are expected to be compiled by the first half of this year.

The CSRC is also in talks with the Hong Kong securities regulator and the three bourses in Shanghai, Shenzhen and Hong Kong to find an efficient way for red chips to list on the mainland as soon as possible.

1

2

(For more biz stories, please visit Industry Updates)