China may allow overseas companies to sell stock in Shanghai next year, opening the world's largest market for first-time share sales and advancing the city's bid to become an international financial center.

"The preparation work is proceeding quite nicely," said Fang Xinghai, director general of Shanghai's financial services office. Asked when overseas companies will be allowed to list on the city's stock exchange, Fang said, "sometime next year, I hope".

HSBC Holdings Plc and London Stock Exchange Group Plc are among companies that have expressed interest in a Shanghai listing when China opens the world's largest market for stock sales to overseas firms. Companies may raise about 500 billion yuan ($74 billion) in initial public offerings (IPO) in Shanghai and Shenzhen this year, more than in any other country, PricewaterhouseCoopers said on July 5.

"Having a foreign board creates a deeper and broader capital market," said Peter Alexander, Shanghai-based principal at Z-Ben Advisors. "It's one of many steps toward achieving the stated goal of making Shanghai a global financial center." The China Securities Regulatory Commission (CSRC) and the Shanghai stock exchange "are taking the lead" in preparing rules governing stock offerings by overseas companies in the city, Fang said.

Shanghai has been contacted by overseas companies from the finance, telecommunications, consumer goods and manufacturing industries about selling shares in the city, Fang said in May.

Two overseas companies and one red-chip firm - a company controlled by Chinese owners and listed abroad - may debut on Shanghai's international board as early as in this year's second half, Frank Lyn, PwC's China markets leader, said on July 5.

A stock market slump that left Shanghai shares trading at a discount to equities in Hong Kong has made mainland offerings less appealing to overseas companies, said Jonathan Masse, a fund manager at Walnut Creek, California-based AlphaShares Inc. Companies with "a great deal of business in China are likely to be less inclined to IPO on the mainland, as any capital raised would likely be at an international discount", he said.

HSBC, Wal-Mart

Yuan-denominated A-shares, which are restricted almost exclusively to local investors, fell below mainland stocks traded in Hong Kong last month for the first time in almost four years, according to the Hang Seng China AH Premium Index. CSRC Vice-Chairman Yao Gang said at a forum in Shanghai in June that legal and jurisdictional issues need to be resolved before the international board can be started.

London-based HSBC, Europe's largest bank by market value, is waiting for rules governing Shanghai listings by overseas companies to be completed, Chief Executive Officer Michael Geoghegan said last month in Shanghai. The lender aims to raise a "significant amount" on the city's stock market, he said.

London Stock Exchange aims to list in Shanghai by the end of 2011, CEO Xavier Rolet said in June. Coca-Cola Co, General Electric Co and Wal-Mart Stores Inc are among US companies that may seek listings in China, UBS AG strategist John Tang wrote in a July 2009 report.