The Chinese Securities Regulatory Commission is soliciting opinions from several brokerages on a draft rule regulating long-awaited return of red-chip companies - mainland firms which are registered and listed overseas - to the domestic stock market.

The draft rule laid down four criteria for red-chip companies applying for mainland initial public offerings (IPOs). First, their stocks should be traded on the Hong Kong Stock Exchange for more than a year. Second, the total market value of a company should be more than HK$20 billion (US$2.56 billion). Third, the company's total revenues in the past three years should exceed HK$2 billion. And finally, more than half of the company's operational assets should be located in the mainland or over 50 percent of its revenue should come from mainland business.

Due to the close cooperation between stock regulators on the mainland and Hong Kong, it is reasonable to choose the Hong Kong-listed red chips as a pilot project, the China Securities News reported, citing an unnamed source.
The recent successful offers of both A- and H-shares by large State-owned companies like the Industry and Commercial Bank of China and COSCO also provide accounting experience for the return of red chips.

Currently, there are altogether 91 red-chip companies listed in Hong Kong, but only a few meet the above criteria. There are only 25 red chips with a market value over HK$20 billion.

Zhou Xinzheng, researcher with Southwestern Securities predicts that China Mobile, CNOOC, Bank of China (Hong Kong) Ltd, and China Netcom will be the first group of red-chip companies to return. Some sharp-sighted brokerages have already make contact with qualified red-chips for underwriting issues.

Professor He Qiang, head of the futures research center of Central University of Finance and Economics, said that in the long run, the return of red-chips will be good news to the mainland A-share market since most of them are well managed and follow regulated operations.

Those companies will bring advanced managing experience to mainland-listed companies and help to improve overall standard of the Chinese stock market, he added.