IPOs by Chinese companies face new challenges

Written by Kapronasia || July 02 2024

It is highly unusual for there to be a global drought for Chinese IPOs, with tepid market activity in mainland China, Hong Kong and further offshore. Yet that is exactly the situation today. In the first six months of 2024, just 44 Chinese firms went public in the mainland, down 75% year-on-year, raising just US$4.48 billion. The situation was no better in Hong Kong and New York.

There is no one factor contributing to the Chinese IPO slump. But we reckon that a part of the problem is tepid investor confidence in China’s economic prospects. It is not so much that China’s economy is “in trouble” as some headlines proclaim, suggesting a dire predicament. Rather, stalled reform, intensifying U.S.-China competition that has led to a change in some companies’ investment patterns and a lack of support for China’s most innovative private sector industries – which are among the most important job creators – have combined into a perfect storm that is sapping investor faith in the world’s second largest economy.

At least 100 companies have nixed plans to list this year on exchanges in Beijing, Shanghai and Shenzhen, according to Chinese financial regulatory records. Venture capital investment is at its lowest point since 2020.

At the same time, there are regulatory factors affecting the mainland IPO market. The State Council’s recent announcement of nine guidelines to promote high-quality development of the A-share market, and related measures, intensified scrutiny of A-share listing applicants and issuances in the first half of the year. “This prompted a slowdown in Chinese mainland IPO activity in H1 2024 that is set to affect the offering scale for the entirety of 2024,” Deloitte said in a June 21 news release. That said, Deloitte still expects that the A-share market will have about 115 to 155 new listings this year raising approximately RMB139 billion to RMB166 billion.

As for Hong Kong, 26 companies raised US$1.5 billion via IPOs on the main board of the Hong Kong Stock Exchange through June, according to London Stock Exchange Group data. The proceeds are 35% less than 2023’s first-half total and the lowest since the US$802 million raised in the first half of 2003 when Hong Kong was affected by the SARS epidemic.

While some analysts are optimistic the situation will improve in the second half of the year, it is worth noting that Beijing has yet to voice support for the consumer internet and/or fintech sectors. A continued emphasis on “hard technology” will mean that firms specializing in areas like artificial intelligence and quantum computing will find favorable market conditions in Hong Kong, but the overall deal pipeline will not be as robust as in years past.

As for offshore listings, Chinese companies have raised just US$580 million in the U.S. thus far in 2024, most of it from one IPO by the electric vehicle maker Zeekr. Undoubtedly, U.S.-China tensions have significantly affected this once thriving market. Online shopping company Shein reportedly scrapped a planned listing in New York due to opposition to the listing by prominent U.S. politicians. We do not expect this situation will change anytime soon, while that Chinese companies will remain cautious about listing in the U.S. given the upcoming presidential election and potential for abrupt policy changes thereafter.