Over the past decade, Chinese companies targeting global investors have often listed on either the Nasdaq or NYSE, Alibaba most famously on the latter in 2014. The Chinese government never encouraged such decisions, but until recently it did not necessarily oppose them. After all, the U.S. has the world’s most liquid capital markets and having access to them has served Alibaba, JD.com and many other Chinese firms well.
However, the downturn in U.S.-China relations has made it more difficult for Chinese firms to list in the U.S. Legislation passed by the U.S. Congress in 2020 could force Chinese companies that refuse to fully open their books to U.S. regulators to delist within three years. To be sure, there are likely ways around that, but there is no way around Beijing’s preference for companies in possession of sensitive user data to list at home. Didi, which reportedly has data on the rides taken by government officials, is a case in point. Didi’s fate remains unclear, although it has agreed to set up a data manager per regulatory demands.
The Wall Street Journal recently reported that China’s Securities Regulatory Commission is considering a ban on overseas initial public offerings (IPOs) for Chinese tech firms that possess large quantities of consumer data.
At the same time, China plans to launch a stock exchange in Beijing. The new exchange represents a rejigging of an over-the-counter exchange known as the New Third Board. This Beijing-based exchange may have several different purposes. The first is to help small and medium-sized firms access capital from professional investors. The Chinese government is not talking about just any SMEs, but “service-oriented, innovative SMEs,” according to an announcement by Chinese President Xi Jinping.
Banks are typically reluctant to lend money to such companies, which lack assets or a long track record. If the firms can instead raise capital on the Beijing Stock Exchange, they would perhaps have less impetus to seek listings on the NYSE or Nasdaq. In that sense, the new stock exchange may also be intended to discourage startups from going public in the U.S.
Nevertheless, a total U.S.-China financial decoupling is unlikely. There is just too much money at stake. Indeed, Chinese firms that had been planning IPOs in the U.S. prior to the Didi debacle are hoping to get the ball rolling again, according to a recent Nikkei Asia report. Those companies are eager to move ahead with roughly US$866 million of IPOs in New York, the report said. Most of the deals are small, the exceptions being e-cigarette producer Aspire Global and hotel operator Atour Lifestyle Holding.