Data from Renaissance Capital show that through October 4, 17 Chinese companies raising a total of US$405 million went public on U.S. exchanges. While that is approaching the total of US$468 million raised in 14 deals last year, it is a far cry from the 34 IPOs and US$12.6 billion raised in 2021.
Several factors are constraining the deal pipeline. First, U.S.-China relations remain strained, if perhaps on the mend in certain respects. Second, Beijing is concerned about capital outflows given the slew of economic and financial challenges it is facing. It is also increasingly focused on national security and cybersecurity. For instance, since the abortive Didi Chuxing listing on the NYSE in June 2021, Chinese regulators have promulgated a rule that requires all companies with more than 1 million users to go through a cybersecurity review before they can list overseas. Further, in February, China published a new set of rules that requires all companies that want to list overseas to gain approval from the China Securities Regulatory Commission (CSRC).
We reckon that Chinese companies’ appetite for overseas deals is more heavily influenced by the sentiments of its own regulators than other factors. Indeed, U.S.-China relations have shifted decisively since 2018 and there is no going back to an earlier, less competitive relationship. Companies are learning how to navigate this new normal. But if Chinese regulators are sending out a clear signal to put the brakes on overseas deals because they are concerned about data security or high capital outflows, that presents a larger obstacle to going public outside of China.
To that end, it is worth noting that the deal pipeline in Europe for Chinese companies – which was mainly in Switzerland last year and involved GDR issuances – has also dried up. After the CSRC published new rules in May that require overseas listings must be “rational,” not leak state secrets and not be too frequent, Chinese firms have put the brakes on plans to list on the Swiss Exchange (SIX).
With regards to Chinese firms listing in the U.S., another factor to consider is the performance of the companies: Renaissance Capital found that the group of Chinese companies that listed on U.S. exchanges from 2018-2022 averaged a negative 65% return from offer, compared with minus 23% for all IPOs over that period and minus 16% for non-Chinese issuers. Of the 17 Chinese issuers that have listed in the U.S. in 2023, just one has raised more than US$50 million: lidar developer Hesai. While the year's larger initial offerings in the U.S. have generally been trading well, Hesai has fallen more than 50% from its offering price.
If returns are poor, it is hard to see how the deal pipeline will be revived in the U.S., even with fewer geopolitical concerns and less regulatory constraints on overseas deals.