Shhh: Shanghai Taking On N.Y. (Investor's Business Daily)

China is quietly chasing deals with Brazil, Russia and other big emerging-market stock exchanges to allow cross-listings, part of its drive to turn Shanghai into a financial center rivaling New York.

The Shanghai Stock Exchange and Brazil's BM&FBovespa, Latin America's top securities exchange, inked a pact in February that many believe will lead to cross-listings. If that happens, Brazilian giants like iron ore exporter Vale (NYSE:VALE - News) could list yuan-denominated shares in Shanghai and access Chinese capital. Chinese firms could list in Brazil.

Gary Kleiman, an emerging-markets analyst, says China is informally discussing similar cross-listing deals with Russia and various Southeast Asian countries.

"You already have major Russian and Brazilian listings (in Hong Kong dollars) on the Hong Kong Stock Exchange," said Kleiman, who runs D.C.-based Kleiman International. "It would make sense to carry some alliances and cross-listings generally into (China's) securities sphere."

Shanghai has reportedly signed technology and information sharing pacts with 40 other bourses that could lead to closer cooperation, including cross-listings.

If Chinese cross-listings spread, companies from Sao Paulo to Russia's St. Petersburg will be allowed to access capital directly from what's expected to be the world's biggest economy in a few years. Chinese firms can tap these developing market listings to penetrate markets outside China and raise cash.

New York over time could get fewer listings of companies from China, Brazil and elsewhere.

Some say Beijing is just catching up with the U.S. and other Western nations in forging ties with top emerging economies.

But some see sinister motives.

On the surface, there's nothing wrong with Chinese cross-listings with emerging countries, says Peter Morici, a former chief economist at the U.S. International Trade Commission.

"But doing that in the context of an undervalued currency makes it part of a new imperialism," said Morici, a business professor at the University of Maryland. "What (China) is trying to do is make the yuan an international currency without subjecting it to float. They are trying to establish a fixed exchange rate system."

Others see exchange tie-ups as a way to expand business relations with nations that can satisfy China's hunger for raw materials.

"China is trying to build financial links with emerging economies to access resources," said Clyde Prestowitz, a Reagan administration trade official and author of "The Betrayal of American Prosperity."

China is merely protecting its developing securities industry amid a global merger wave, Kleiman says. Deutsche Bourse will buy NYSE Euronext (NYSE:NYX - News) for $9.53 billion. The London Stock Exchange's $3.1 billion deal for Toronto's TMX fell apart this week.

He says Beijing also is promoting cross -listings to bolster its leadership among the BRICS nations of Brazil, Russia, India, China and South Africa.

Shanghai lacks an international board for foreign-listed stocks and a mechanism to permit yuan trading in foreign stocks because the currency doesn't float. But an international board will launch by year-end, Chinese media say.

MICEX, Russia's leading stock exchange, already does limited Chinese currency trades, providing a possible mechanism for future China-Russia cross-listings.

The cross-listing idea arose out of BRICS summits, Kleiman says, in which the countries seek to coordinate policies, buy each other's goods and sidestep American dominance. At an April summit in Hainan, China, BRICS nations said they will end mutual payments in dollars. They also will only offer credits to one another in their national currencies .