China bars access to offshore tech darlings in unexpected move to halt capital flight as markets fall

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The temporary exclusion of companies with so-called weighted voting rights (WVRs) could hurt Xiaomi and other tech start-ups

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A man is seen against an electronic board showing stock information at a brokerage house in Fuyang in Anhui province on March 16, 2018. Contrary to global conventions, China’s stock exchanges use red to denote gains and advances, using the colour green to represent losses and declines. Photo: REUTERS

Jane Li

Published: 6:00pm, 14 Jul 2018Updated: 12:06pm, 15 Jul 2018

China’s equities bourses will temporarily bar mainland Chinese investors from trading companies with multiple classes of stocks, in a move to prevent domestic capital from fleeing the country’s bear market to Xiaomi and other offshore-listed darlings of global finance.

Foreign companies, stapled securities and stocks with so-called weighted voting rights (WVRs) listed in Hong Kong will be temporarily excluded from the pool of stocks that mainland Chinese investors are allowed to trade in, under the so-called Stock Connect programmes, according to a statement on the Shanghai exchange.

“Many [Chinese] investors have said that still lack a proper understanding of these new equity products, especially with regards to the operational and financial systems of overseas companies,” the two bourses said in their joint statement.

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The surprise announcement, coming a week after Xiaomi became the first company with multiple classes of stock to trade in Hong Kong under new listing rules, would deny investors in mainland China - where Xiaomi earns most of its sales - the chance to partake in the earnings of the world’s fourth-largest smartphone maker.

Chinese regulators have good reason for concerned, as Shanghai’s benchmark Composite Index has slumped 23 per cent since January amid the steady drumbeat of the trade war between the US and China. The Shenzhen Composite Index has fallen 22 per cent over the same period, landing Asia’s largest combined equity market in bear territory.