There was a time when initial public offerings of Chinese Internet companies were the hottest thing on Wall Street.
Ten years ago, as e-commerce giant Alibaba prepared to go public on the New York Stock Exchange, the world’s largest banks competed fiercely to be the underwriter. When the opening bell rang on September 19, 2014, stock traders cheered and put on orange hoodies over their suits, Alibaba’s signature color. The IPO raised $25 billion, the largest listing at the time. In the following years, many other Chinese companies raised billions of dollars in the United States.
Those days are well and truly over. Wall Street hasn’t seen anything like the kind of IPO bonanza that Chinese companies have seen in three years. In fact, the drought has gotten worse. So far this year, Chinese companies have raised about $580 million in U.S. stocks, almost all of it from last month’s IPO of electric car maker Zeekr.
As geopolitical relations between China and the United States deteriorate, it is becoming increasingly difficult for Chinese companies to find an overseas stock market that is not burdened by political concerns.
advertise
The situation at home is not much better. As part of Beijing’s push to tighten control over the stock market, regulators have made it harder for Chinese companies to go public, sharply slowing the pace of domestic listings. So far this year, about 40 Chinese companies have gone public at home. They have raised less than $3 billion, a fraction of what they would normally raise at this time of year, according to financial data provider Dealogic.
If the current pace continues, the number of Chinese IPOs this year will be the fewest in more than a decade.
The slowdown is a major shift from a golden age of Chinese private enterprise, when multibillion-dollar listings of Chinese tech companies fueled the country’s economic boom. The lucrative returns from listings reshaped the way startups raise money, attracting more private capital from abroad while allowing domestic and foreign investors to move money out of the country.
The shift shows how China’s top leader, Xi Jinping, isPrivate EnterpriseOfficials have forced successful companies to delist, sent entrepreneurs to jail, and swooped in to ban thriving industries.profit.
“A lot of the use of capital through private enterprise and stock markets poses a potential risk to the party’s influence,” said Andrew Collier, managing director of Orient Capital, an economic research firm in Hong Kong.
The uncertainty caused by Xi Jinping’s crackdown has wiped billions of dollars from the value of China’s technology industry andVenture Capital CorporationSignificantly reduce investment in China.
Meanwhile, as tensions rise between Washington and Beijing, Chinese companies are unsure what kind of scrutiny they might face if they try to list in the U.S. “No one really wants to test the waters,” said Yang Murong, managing director of Beijing-based Mingshi Capital.
In February this year, it was reported that online shopping companies founded in ChinaXiyin(Shein) seeks to go public in the United States, Senator Marco RubioAfter learningUrges the head of the U.S. Securities and Exchange Commission to take action if Xiyin refuses to share information about its ties to the Chinese governmentPrevent it from going public.
“Today, Chinese companies’ choice of which market to list on is influenced by factors other than their basic commercial value — a product of geopolitical considerations,” said Yu Dan, an American investor who has worked with Japanese tech giants SoftBank Group and Warburg Pincus on investments in China.
advertise
Four or five years ago, a successful Chinese company was a promising candidate for listing as long as it held a large market. “You would ask, ‘Why haven’t you listed overseas yet?'” Yu Dan said. “But now the question has become, ‘Why do you want to list overseas?'”
Most of the Chinese companies now listed on U.S. stock exchanges went public between 2018 and 2021, as investors rushed to back startups like Manbang Group, whose app connects freight customers with truck drivers, and Kanzhun Technology, which operates a job-hunting platform.
The boom ended in mid-2021, when China’s ride-hailing companiesDidi ChuxingDidi went public on the New York Stock Exchange without approval from Chinese regulators. At the time, Didi had more users in China than Uber had anywhere else in the world. Two days after the listing, Chinese authorities forced Didi to stop registering new users and acceptCybersecurity reviewout of concern that going public might mean the company would have to transfer Chinese people’s data to the United States.
In less than six months, DidiDelistingNo Chinese company has since attempted such a high-profile listing on an overseas stock exchange, and Chinese regulators have set stricter standards for companies looking to go public. This year, Alibaba scrapped plans to spin off a logistics unit through a Hong Kong listing.
China’s private sector has long had to find ways to avoid being clamped down on by the authorities.
China established two major stock exchanges in Shanghai and Shenzhen in the early 1990s as part of its economic transformation reforms, but IPOs have been limited mainly to state-controlled companies.
advertise
From 2011 to 2018, China had roughly the same number of IPOs as the U.S. In 2019, China launched a new STAR Market on the Shanghai Stock Exchange to encourage tech companies to list in Shanghai. But Chinese investors and company founders prefer listing in New York if they have a choice.
Since Didi’s delisting, Beijing has made it clear that the influence and profits of China’s private sector should be used to promote China’s technological self-reliance. Investment has poured into cutting-edge fields such as semiconductors, artificial intelligence and data centers. In May, the government registered a fund with a capital of 344 billion yuan specifically for semiconductor development, signaling to entrepreneurs and investors that some industries are recognized even though they may be more risky.
In April this year,The Chinese government has released a planwhich imposes higher standards on companies that want to go public, including more information disclosure and stricter supervision.
At least 100 companies have withdrawn plans to go public this year in Beijing, Shanghai and Shenzhen, according to public records from regulators. Venture capital investment is at a four-year low.
“China’s securities regulators have always been very strict about companies going public, and this plan is even stricter,” Collier said. “Many companies are worried about listing in China or feel they can’t meet such stringent conditions.”