China Committee


China’s IPO Race

Hong Kongstays ahead in IPOs, but can it hold onto its lead?     By Tawhid Islam

Hong Kongremains the world’s most active international ex-change, raising US$57.4 billion in 2010.  This was helped of course, by the fact that listings from Greater China companies accounted for 46% of the US$284.6 billion in IPO capital generated globally for the year.

As the only Chinese exchange fully open to foreign investors, Hong Kong remains the ideal platform for Chinese companies with international aspirations, offering access to global funds and flexibility in subsequent fund raising activities.

It is likely, however, that Hong Kong will face stiffer competition in future from the opening up of the Mainland’s own exchanges.

While China’s listing regulatory requirements are still very strict, the vision in China is for Mainland exchanges to come into line with the rest of the world’s major exchanges. And change is something China is experienced in.

Shanghaialready has an international board undergoing preparatory work to allow overseas companies to list in China. This suggests China has an appetite for IPO expansion and a change in its own regulations will eventually follow.

For the moment, Hong Kong enjoys the best of both worlds.

International businesses with operations in China can raise capital in Hong Kong through issuing bonds or through yuan denominated IPO’s, to support their China operations. Accordingly, Hong Kong is developing as a major offshore yuan centre. 

Stay local, or go international?

In the last five years, 38% of all China IPOs have been overseas and there are a number of reasons for Mainland companies to look overseas for a listing.

International listings are more complicated from a governance perspective, but less demanding than a local Mainland listing, given the stringent requirement in China to show a minimum three-year trading performance in order to be eligible.

Other reasons can be simple brand exposure. A recent listing by Zuoan on the New York Exchange, for instance, gave the huge fashion manufacturer valuable exposure to international markets, which they may see as a natural extension to their current China business operations.

So the long established Chinese businesses list at home, Shanghai and Shenzhen being the main domestic exchanges, while newly founded, high-tech start-ups, for example, look abroad.

Successful local listings continue to raise huge amounts of capital.  Especially now for industrial and mineral companies, given the Chinese government’s stimulus funding in relation to infrastructure and transportation projects, such as the current high speed rail network expansion project.

Dual listings in both Mainland and Hong Kong tap both sources.  The two largest bank IPO’s in history, the Agricultural Bank of China and the Industrial and Commercial Bank of China, were dual listings in both Shanghai and Hong Kong, with Hong Kong raising more capital* in both cases. 


Nevertheless China remains an extremely popular destination for fund managers worldwide, who are constantly seeking out value on the Chinese stock exchanges. Institutional investors looking for growth alongside fiscal stability, see China fitting this mould given its strong economic fundamentals and market liquidity.

We should expect to see the natural evolution of China’s IPO capabilities realized over the coming years, which can put Shanghai, and perhaps Shenzhen, alongside Hong Kong, New York and London as the world’s leading financial centres. When and if this steals Hong Kong’s seat at the top may depend on a typical listings issue – timing. 

Tawhid Islam is a Senior Manager at Mazars Hong Kong, having transferred to Hong Kong after seven years in Mazars London, Manchester and Birmingham offices in the U.K.   

* ICBC raised US$5.9bil at home and US$16bil / ABC raised US$12.1bil in Hong Kong and US$10bil at home.