Chinese A-share companies have started to list in Switzerland, while initial public offerings (IPOs) on the Hong Kong Stock Exchange (HKEX) reached a record low. This is the current trend.

Chinese A-shares are listed on the two major Shanghai or Shenzhen stock markets. Only mainland Chinese citizens can trade A-shares.

Chinese companies line up to go public in Switzerland

Four companies that just went public in Switzerland are Keda Industrial Group, Ningbo Shanshan, GEM, and Gotion High-tech.

These four Chinese companies raised a total of $1.6 billion.

Nine more Chinese companies are about to follow suit. They have applied to list in Switzerland and are waiting in line. 

Hong Kong’s IPO market downturn

In its most recent interim results, the Hong Kong stock exchange made 27% less profit in the first half of 2022 than it did in the same time last year. Revenue and other incomes also went down by 18%. Its IPO fundraising plunged by 91%, from HK$211 billion (or about $26 billion) to HK$19.7 billion (about $2.5 billion).

With the worst market sentiment on record in the first half of 2022, the Hong Kong stock exchange has dropped out of the top five places in the world for raising money through IPOs. Hong Kong used to be the best place for an IPO—seven times in the last 13 years. In 2012 and 2021, it was ranked fourth, which was its lowest global ranking.

Still, according to Chinese state-owned financial news outlet CLS, Hong Kong remains “the top choice for return IPOs” because it is getting harder for Chinese companies to get listed in the United States.

Why Switzerland?

At the end of July, China’s foreign currency reserves were $3.1 trillion, which is $117 billion less than they were in January. To keep the yuan exchange rate stable, China sold $113 billion worth of U.S. Treasuries over the past seven months. This brings the total amount of U.S. Treasuries it owns to a 12-year low.

Albert Song is a current affairs commentator and expert on the Chinese financial system. According to Song, because the Chinese Communist Party (CCP) controls foreign exchange reserves, it’s getting harder for Chinese companies to get foreign currency to do business overseas. One way around this is to get money from overseas.

He added that when Chinese companies raise money abroad, it helps their image. Some businesses can get more credit from banks, which makes it easier for them to raise capital. Some of them also have ties to local governments, and having assets and financial resources overseas can help with foreign legal issues. He also said that raising foreign capital helps Chinese companies raise money inside China.

Since the CCP cracked down on Ant Group’s planned IPO in late 2020 and Beijing’s Didi in 2021, more scrutiny has been focused on how Chinese companies access foreign capital markets. 

The CCP issued new laws about user privacy and national security to raise the bar for Chinese IPOs. Many Chinese businesses could be removed from the New York stock markets if China and the U.S. can’t agree on audit requirements.

According to Song, the U.S. Securities and Exchange Commission is making it harder and harder for companies to go public in the United States. And Chinese companies are at risk of being delisted for financial fraud and refusing to hand over audit reports. So, Europe has become a popular alternative. And he thinks that in the future, many Chinese companies will choose to list in London.

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