China Capital Markets Research

Is Europe the new New York for Chinese companies keen to raise capital overseas? Not exactly, as there is no exact replacement for the capital markets opportunities that the Nasdaq and NYSE once afforded Chinese firms. But given persistent tensions in the U.S.-China relationship, Chinese companies are opting for less liquid capital markets and less prestigious overseas listings – but without any of the geopolitical drama that has come to characterize their presence on U.S. exchanges. Switzerland’s SIX, meanwhile, is fast becoming the exchange of choice for Chinese companies wanting to raise capital outside of Greater China.

2022 was a year of mixed fortunes for China in many respects – but not in the case of its IPO market. Despite the trials and tribulations that the zero-Covid policy brought to China, listings on the Shanghai and Shenzhen stock exchanges hit a new high. Nearly 400 firms are estimated to have gone public on China’s exchanges in 2022, raising a record RMB 560 billion (US$80.4 billion), an increase of 3% over 2021, according to PwC.

Historically, Chinese companies seeking to go public overseas have listed in the United States, home to the world’s most liquid capital markets. Nothing can quite compare with listing on the New York Stock Exchange (NYSE) or Nasdaq. While that remains the case, the fraught U.S.-China relationship has caused Chinese firms to turn their focus to European stock exchanges, especially Switzerland’s SIX. In Europe, Chinese companies can mostly steer clear of geopolitical tensions while still being able to access global investors.

Though the U.S. and China have for now reached a stock delisting détente, Chinese firms are continuing to show interest in raising capital on European exchanges this year. As such, for the first time ever, Chinese companies have raised more in European capital markets than in the U.S., with the focus on the UK and Switzerland.

While U.S.-China tensions are heated in many areas, it appears that the two countries want to keep the bilateral relationship on an even keel when it comes to the financial services sector. Despite the sensitive politics on both sides of the conversation, the two countries have, for now, reached an agreement that should reduce the chance of a large-scale delisting of Chinese companies from U.S. stock exchanges.

We have heard a lot about Chinese companies potentially delisting en masse from the U.S.’s capital markets. Without an eleventh-hour deal between the US and China, that may be inevitable. The paramount long-term trend, however, is where they will go in the first place to raise capital internationally. Hong Kong is the most obvious choice, but there are also options in Europe thanks to the establishment of stock connect programs. To that end, with the launch of the China-Switzerland Stock Connect four Chinese companies have listed on the Six Swiss Exchange.

U.S.-China financial decoupling has been happening in slow motion and sometimes appears to be leveling off, allowing some observers to stay optimistic. In reality, however, it will not be easy for American and Chinese regulators to agree on a deal that allows Chinese firms to remain listed on U.S. stock exchanges. With that in mind, Alibaba recently announced it will pursue a primary listing in Hong Kong.

The government crackdown on China’s tech sector has had many far-reaching effects, among the most consequential the reorientation of the country’s capital markets ecosystem away from consumer-facing platform companies and towards a state-guided deal pipeline focused on strategic industries. E-commerce, fintech, ride hailing and home sharing are out, while advanced manufacturing, artificial intelligence, 5G telecommunications and renewable energy are in. Big-ticket mainland IPOs are becoming more common, especially with the advent of the Shanghai STAR board, China’s answer to the Nasdaq.

During China’s long tech boom, private investors availed themselves of the abundant opportunities afforded by Chinese IPOs, whether onshore, in Hong Kong or in New York. Yet with Beijing’s crackdown on the tech sector and persistent U.S.-China tensions, Chinese IPOs are going in a very different direction.

There is a growing list of Chinese companies that could be forced to exit U.S. stock exchanges under legislation passed in 2020. The legislation requires all public companies in the U.S. to comply with auditing requirements that Chinese companies have resisted due to Beijing’s own state secrecy laws. On March 30, the Securities and Exchange Commission (SEC) added Baidu to the list. A total of 11 Chinese companies facing delisting have been named so far. 

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