China Floats to the Top, The Wire China, May 2, 2023.
By Eliot Chen
The surge in IPOs on domestic markets is a win for Chinese policy makers and local investment banks.
Chinese companies are dominating the global market for initial public offerings, as listings in the West continue to drag in 2023. So far this year, new Chinese flotations have raised almost five times as much money as those in the United States.
For China’s policymakers, that’s good news. Beijing has sought to encourage private companies — particularly those in strategic sectors — to pursue IPOs at home, while at the same time making it harder for them to list abroad. Data on listings since the start of 2022 suggest that that plan may be working.
This week, The Wire looks at IPOs in China: how much money is being raised, which are the largest companies going public, and how the country’s competitors are faring.
LISTING LISTINGS
Source: The Wire China
Both the number and total volume of Chinese public listings in the first four months of the year has outpaced those in the U.S. So far this year, Chinese companies have raised close to $20 billion on mainland bourses, including a $1.1 billion IPO by Shaanxi Energy Investment, a state owned utility firm, and $663 million IPO by Yuneng New Energy Battery Material Co., a battery cathode manufacturer. By comparison, firms in the U.S. raised just $4 billion in the first four months of the year, according to data from Dealogic, a financial data provider.
High inflation and rising interest rates led to a plunge in U.S. and European IPO activity in 2022. This year, additional uncertainty stemming from the crisis in the banking sector has stymied any recovery.
As a result, Chinese investment banks leapfrogged their American counterparts to dominate the rankings of top IPO banks in 2022, with that trend continuing in the first four months of this year. State-owned CITIC Securities was the top IPO underwriter of 2022, and continues to lead the rankings this year, followed by China Securities1 and China International Capital Corporation (CICC). Six of the top 10 underwriters so far this year are Chinese.
“China has closed its markets to foreign competition when its own companies were weak,” says Fraser Howie, co-author of Red Capitalism: The Fragile Financial Foundations of China’s Extraordinary Rise. “Now they’ve opened up 100 percent [foreign] ownership of brokerages, but the domestic brokers are much stronger, and the playing field is so tilted that it frankly doesn’t matter what the foreigners do, it’s all become such a domestic insiders game.”
In February, China’s securities regulator announced it would make it easier for companies to go public on domestic stock exchanges by simplifying listing requirements and paring back the amount of regulatory oversight needed for firms to pursue listings. Those changes went into effect last month, with new IPOs under the streamlined system seeing a surge of investor interest.
Through government guidance funds — similar to public-private investment funds — the authorities have also channeled money and attention towards strategic industries, such as semiconductors and renewable energy.
The list of China’s largest public listings over the last 12 months reflects these priorities. Seven of the top ten largest listings were companies involved in energy and renewables.
While mainland exchanges have enjoyed a wave of activity, Hong Kong continues to lose market share. It accounted for less than seven percent of total global IPO proceeds in 2022, according to Dealogic data, down from about 18 percent in 2018.
The amount of fundraising in Hong Kong in the first four months of this year is down 20 percent compared to the same period in 2022. The disappointing debut last month of Chinese baijiu maker ZJLD — whose performance was seen as a key bellwether for the bourse — has dampened confidence that the city’s IPO market could rebound later on this year. Shares in ZJLD fell 18 percent on their first day of trading, though they have since rebounded.
“The fact Hong Kong is struggling to some extent doesn’t surprise me,” Howie says. “It’s got no ability to create domestic companies and very limited ability to attract international listings. Meanwhile, the onshore market has gotten broader and more diverse, and ultimately is the place that [China] should develop.”
