VZCZCXRO0300
RR RUEHCN RUEHGH
DE RUEHGH #0512/01 2262114
ZNR UUUUU ZZH
R 142114Z AUG 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6134
INFO RUEHBJ/AMEMBASSY BEIJING 1327
RUEHCN/AMCONSUL CHENGDU 0817
RUEHGZ/AMCONSUL GUANGZHOU 0797
RUEHHK/AMCONSUL HONG KONG 0938
RUEHSH/AMCONSUL SHENYANG 0819
RUEHIN/AIT TAIPEI 0656
RUEHUL/AMEMBASSY SEOUL 0098
RUEHGP/AMEMBASSY SINGAPORE 0072
RUEHKO/AMEMBASSY TOKYO 0176
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 6582

UNCLAS SECTION 01 OF 02 SHANGHAI 000512 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/ALTBACH/READE 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN 
FRANCISCO FRB FOR CURRAN; NEW YORK FRB FOR CLARK/CRYSTAL/MOSELEY 
CEA FOR BLOCK 
USDOC FOR ITA/MAC DAS KASOFF, MELCHER AND MCQUEEN 
TREASURY FOR OASIA - DOHNER/BAKER/CUSHMAN/MOGHTADER/SOBEL 
TREASURY FOR WRIGHT AND AMB HOLMER 
NSC FOR WILDER AND TONG 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON CH
SUBJECT: NYSE-NASDAQ: REP OFFICES PENDING, PROBLEMS LOOMING 
 
REF: A. Shanghai 250 
     ¶B. SHANGHAI 337 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet.  Contains Business Sensitive information. 
 
¶1. (SBU) Summary: According to NASDAQ and NYSE representatives, 
it was unlikely that their applications to open representative 
offices would be approved soon.  Although the applications were 
submitted at the beginning of July, CSRC contacts told NASDAQ 
and NYSE that approval was several months away.  Representatives 
were increasingly concerned about Chinese regulations that 
limited the ability of Chinese companies to form special purpose 
vehicles (SPVs).  No new SPV application has been approved since 
September 2006.  By 2008, there will be few Chinese companies 
left that are eligible to list overseas. 
 
----------------------------------------- 
NYSE/NASDAQ Rep Offices Still Months Away 
----------------------------------------- 
 
¶2. (SBU) NASDAQ Vice Chairman Mike Oxley and NASDAQ Head of Asia 
Pacific Eric Landheer told Econoff, on August 7, that the China 
Securities Regulatory Commission (CSRC) was reviewing their 
application for a representative office.  Landheer said that 
NASDAQ had submitted its paperwork as soon as the CSRC had 
allowed them to at the beginning of July (Ref A).  The CSRC was 
"studying the application" and had asked for additional 
documentation for consideration, such as an "office manual." 
Landheer understood from the CSRC that it would be two-three 
months before their application was approved. 
 
¶3. (SBU) On August 13, New York Stock Exchange (NYSE) executive 
Director for Asia Pacific Yeeli Zheng told Econoff that the CSRC 
was also still considering their application for a 
representative office.  Her contacts at the CSRC told her that 
there did not appear to be any problem with the application, but 
that it would take "several months to give it the green light." 
Zheng understood that the application was "going through 
technical procedures before it could be sent to the State 
Council for approval."  Zheng said that the CSRC had refused to 
accept NYSE's application for an office that would represent all 
of the stock exchanges under the NYSE Euronext umbrella.  The 
NYSE re-submitted its application to open a representative 
office just for NYSE LLC. 
 
----------------------------------- 
Chinese Overseas IPOs Are Drying Up 
----------------------------------- 
 
¶4. (SBU) NYSE's Zheng noted the successful listings of two 
Shanghai-based companies (E-House and WuXi PharmaTech) on the 
NYSE in early August.  The current implementation of China's 
"Policy Number 10" or "September 8 Policy" from September 2006 
(Ref B) meant that there would be fewer and fewer companies able 
to list in the United States.  (Note: Zheng referred to the 
"Provisions for Foreign Investors to Merge with Domestic 
Enterprises."  Since this was implemented in September 2006, no 
Chinese company has been approved to form a special purpose 
vehicle (SPV) outside of China.  Forming an SPV in a 
tax-friendly country such as British Virgin Islands or the 
Caymans has been the method of choice for most Chinese companies 
to list on stock exchanges outside of China.  End note.) 
 
¶5. (SBU) Zheng said there were "two groups fighting in the 
government" with different visions for developing China's 
capital markets.  One group supported Chinese companies pursuing 
capital overseas.  However, the group that was currently in 
political ascendance wanted to "keep the good companies at 
home."  NYSE continued to pursue companies that had received 
approval to form an SPV prior to September 2006.  There were 
 
SHANGHAI 00000512  002 OF 002 
 
 
enough such companies to keep NYSE busy with initial public 
offerings (IPOs) through the end of 2008.  After that, "IPOs 
will be hard," she said. 
 
¶6. (SBU) Zheng did note that forming an SPV was not the only way 
that Chinese companies could list on an overseas exchange.  It 
was, however, the preferred route for small- and medium-sized 
companies.  The tax benefits of forming an SPV greatly 
outweighed those of listing overseas as a Chinese registered 
company. 
 
¶7. (SBU) NYSE has also started pursuing companies listed on 
Chinese markets (A-Share companies) to list on the New York 
exchange.  According to Zheng, these secondary listings, while 
not as profitable or visible as IPOs were the wave of the 
future. 
 
¶8. (SBU) NASDAQ's Landheer was also concerned about NASDAQ's 
long-term future in China if companies were unable to list 
overseas.  He noted the irony of being able to open an office, 
but having no business. 
JARRETT