There was a time when initial public offerings of Chinese internet companies were the hottest topic on Wall Street.
Ten years ago, as e-commerce giant Alibaba prepared to list on the New York Stock Exchange, the world's biggest banks competed fiercely to underwrite the listing. Stock traders wearing Alibaba's trademark orange hoodies over their suits cheered when the opening bell rang on Sept. 19, 2014. The IPO raised $25 billion, making it the largest public offering in history at the time. In the years that followed, scores of Chinese companies raised billions of dollars in the U.S.
Those days are well and truly behind us. Wall Street hasn't seen anything close to a blockbuster IPO from a Chinese company in three years. In fact, the situation is getting worse: So far this year, Chinese companies have raised about $580 million through U.S. listings, almost all of it in a single IPO by electric-vehicle maker Zeeker last month.
As geopolitical relations between China and the United States deteriorate, it is becoming increasingly difficult for Chinese companies to find overseas markets where their listings are not jeopardized by political scrutiny.
The situation in China is no better. As part of tightening control over the Chinese market, regulators have tightened IPOs and significantly slowed the pace of domestic listings. About 40 Chinese companies have listed locally this year. They have raised less than $3 billion, according to Dealogic data, a fraction of what would normally be raised by this time of year.
If the current pace continues, this year will see the world's lowest number of initial public offerings (IPOs) by Chinese companies in more than a decade.
The slowdown marks a shift from when multi-billion-dollar public offerings by Chinese tech companies underpinned a golden age of private Chinese business. The cash bonanzas from those offerings transformed the way startups raise capital, attracting more private capital from outside China while allowing domestic and foreign investors to move money abroad.
The shift shows how China's top leader, Xi Jinping, has reshaped private enterprise, placing it firmly under the control of the government and the Communist Party. Authorities have forced successful companies off public stock markets, jailed entrepreneurs and suddenly barred fast-growing industries from turning a profit.
“A lot of the ways that money was being spent through the private sector and stock markets were potential risks to party influence,” said Andrew Collier, managing director at Orient Capital, an economic research firm in Hong Kong.
The uncertainty created by Xi's crackdown has wiped billions of dollars from the value of China's high-tech industry and caused U.S. venture capital firms to drastically scale back their investments in China.
At the same time, Chinese companies are nervous about the scrutiny they could face if they try to go public in the U.S. amid rising tensions between Washington and Beijing.“No one really wants to go under the radar,” said Murong Yang, managing director at Future Capital Discovery Fund in Beijing.
In February, following reports that China-founded online shopping company SHEIN was seeking to go public in the United States, Senator Marco Rubio called on the chairman of the Securities and Exchange Commission to block the listing if the company refused to disclose information about its ties to the Chinese government.
“The markets Chinese companies choose to list in now are driven by factors that are a product of geopolitical considerations as well as the company's fundamental business value,” said Linda Yu, a U.S.-based investor who previously worked with Japanese tech giants SoftBank and Warburg Pincus on China investments.
Four or five years ago, successful Chinese companies with large market caps were likely candidates for divestitures. “The question then was, 'Why haven't you listed overseas yet?'” Yu says. “But now it's, 'Why would you list?'”
Most of the Chinese companies now listed on U.S. stock exchanges went public between 2018 and 2021, when investors scrambled for shares in startups such as Full Truck Alliance, which develops an app that connects freight customers with truck drivers, and Canjun, which runs a recruitment platform.
The good times came to an end in mid-2021 when Chinese ride-hailing company Didi Chuxing listed on the New York Stock Exchange without permission from Chinese authorities. At the time, Didi had more customers in China than Uber did worldwide. Two days after the listing, Chinese authorities forced Didi Chuxing to stop signing up new users and undergo a cybersecurity review due to concerns that the listing could mean the company would have to transfer the data of Chinese citizens to the United States.
Didi delisted, or withdrew from the stock market, within six months. Since then, no Chinese company has attempted such a high-profile listing on an overseas bourse, and Chinese regulators have set stricter standards for companies seeking to go public. Alibaba this year scrapped plans to spin off one of its logistics-focused units through a Hong Kong listing.
Private companies in China have long had to figure out how to operate without being crushed by the authorities.
China's main stock exchanges, Shanghai and Shenzhen, were established in the early 1990s as part of reforms that transformed the Chinese economy, but initial public offerings were mainly limited to state-owned enterprises.
From 2011 to 2018, China saw roughly the same number of IPOs as the U.S. In 2019, China launched the STAR Market in Shanghai to encourage tech companies to list, but Chinese investors and company founders preferred to list in New York when possible.
Since Didi's delisting, Beijing has made it clear that the power and profits of China's private industry should be directed toward advancing the country's technological self-reliance. Investment has flowed into cutting-edge areas such as semiconductors, artificial intelligence and data centers. The government registered a $47.5 billion fund dedicated to semiconductor development in May, sending a message to entrepreneurs and investors that while some industries may be risky bets, they are approved of.
In April, the Chinese government announced plans to set higher standards for companies wanting to go public, including more disclosure and stricter oversight.
At least 100 companies have withdrawn plans to list on stock exchanges in Beijing, Shanghai and Shenzhen this year, according to regulatory public records, and venture capital investment is at a four-year low.
“Chinese securities regulators have traditionally been strict when it comes to companies going public, but this plan is even stricter,” Collier said. “Many companies are worried about listing in China or are finding it difficult to overcome the hurdles.”
John Liu Research contribution from Seoul.
