CHINA'S STOCK EXCHANGES

Stock exchanges are no strangers to rivalry �C just ask London and New York. Beijing, however, appears to have taken competition to new heights by reportedly ordering all but the biggest issuers to spurn Hong Kong and stay home.

Chinese regulators clearly have an interest in promoting the home markets, which are now on a roll. The Shanghai B-share market rose 130 per cent last year and together with the country's two domestic currency A-share markets recently overtook Hong Kong in terms of market capitalisation. Diverting more initial public offerings to the domestic markets means more choice for local shareholders, who are largely prohibited from investing overseas. More paper also helps mop up the funds pouring into the home market. And, unpalatable as it may be, Chinese regulators have no qualms about dictating where companies should go to raise funds.

This (unofficial) policy also cuts into Hong Kong's biggest client base. Last year, mainland IPOs accounted for almost 90 per cent of the $43bn worth on the Hong Kong exchange. Trading in shares of Chinese entities made up almost one-third of market turnover. But Hong Kong is less vulnerable than the numbers suggest.

For starters, listing fees comprise only one-tenth of total income and the bulk of that comes from annual payments. More pertinently, Hong Kong has stolen a march on fast-growing derivatives �C it is home to one of the world's biggest equity warrants markets �C and is staying ahead through innovation. A new retail-friendly derivative instrument launched in June was responsible for 83 listings and $1.5bn of turnover by the end of the year. Besides, as the caveat for $1bn-plus issuers suggests, China cannot afford to dispense with Hong Kong just yet. That could only happen when China has a fully convertible currency. Until then, Hong Kong can bank on hosting issuers needing to tap international investors