The Future of Chinese Listed Companies on U.S. Exchanges

In February, the law school at Columbia University hosted a webinar discussing the timely topic, The Future of Chinese Listed Companies on U.S. Exchanges. Columbia University is the alma mater of TPG president, Brandi Piacente.

During the session, panel experts exchanged views on the current state of affairs, offered practical ideas for overcoming roadblocks and discussed potential future scenarios. We were fortunate to participate in this event. Our webinar summary notes are below.

Webinar Summary Notes – The Future of Chinese Listed Companies on U.S. Exchanges

Alibaba, Baidu and JD.Com are just a handful of the more than 200 Chinese companies listed in the U.S. About half the cross-border listings in the U.S. are from China every year and in 2020 alone, close to 30 Chinese companies listed in the U.S., raising $11.7 billion.

The reasons for the draw are many, chief among them being that a primary or a secondary listing on the Nasdaq or the New York Stock Exchange helps a Chinese company raise capital quickly and perhaps more easily, while also giving U.S. investors access to high-value stocks outside of their home country.

However, recent geopolitical tensions between the U.S. and China have been threatening to erode some of this momentum. Two U.S. government initiatives are set to increase scrutiny on Chinese and other foreign companies listing on U.S. exchanges. Firstly, an executive order prohibits U.S. investment in companies that Washington views as tied to or supporting the Chinese military. And more recently, the Holding Foreign Companies Accountable Act threatens to delist foreign companies in three years or prohibit them from U.S. listings if they do not comply with audit-oversight inspections.

This presents a problem, one that is asking to be solved quickly. Here are our key takeaways from Columbia Law School’s timely and topical webinar on The Future of Chinese Listed Companies on U.S. Exchanges.

Panelists on the webinar, including academics, legal experts and cooperate executives, agreed that going to IPO in the U.S. remains a top priority for Chinese companies. The benefits continue to outweigh the challenges and obstacles. The U.S. being the largest, most liquid and most active market in the world, makes it very appealing to Chinese and other foreign companies despite the hurdles.

An IPO in the U.S. is still an extremely attractive option for Chinese companies, saving them time and the hassle of a cumbersome process at home, one of the participants said.

The fact that Chinese companies raised nearly $12 billion from IPOs in the U.S. in 2020, during a time of deteriorating Sino-American trade relations, is a testament to the deep draw U.S. markets have for Chinese companies and vice versa.

A legal expert noted that there remains a continued strong pipeline of Chinese companies planning to list in the U.S. despite the issues.

To be sure, U.S. investors are equally keen that Chinese companies continue to list on U.S. exchanges, granting them access to investment opportunities.

Hong Kong option

It was widely acknowledged that other markets are viable options for Chinese companies, and the U.S. is not the only game in town.

While it was a record year for Chinese companies listing in the U.S., mainland companies listing in Hong Kong also increased.

And if Chinese companies leave U.S. exchanges, U.S. investors will find a way to follow them and invest in them nonetheless. This is likely to happen even though it presents a risk for U.S. retail investors as they don’t have the same legal protections when they invest abroad compared to when they invest in the U.S.

Open to dialogue

Most participants on the call agreed that the world’s two largest economies, the U.S. and China, were open to dialogue and that nothing was set in stone yet.

There was a wide consensus on the webinar that both sides are very willing to engage and discuss the matters – an undeniably encouraging sign that a solution or some type of compromise can be worked out. Talks remain ongoing on many levels.

Winds of change – the Biden Administration

President Joe Biden’s administration in January delayed the implementation of a ban on Americans investing in companies with possible ties to the Chinese military.

While this indicates a softer stance to some, panelists on the webinar were of the opinion that it was too soon to tell and it remains unclear how the Biden Administration would tackle the situation.

There was also a discussion that at a time when the world has changed so much so rapidly, the U.S. needs to acknowledge the Chinese government’s legitimate concerns and work towards being more accommodative in order to maintain competitiveness and best protect U.S. investors.

IPO hope floats

In general, all the panelists said they were hopeful that the two countries would be able to reach a solution within the three-year window. They noted that this would require the resolve of both countries to work together, but they agreed that as long as both sides are talking, finding a solution is possible.

The Chinese economy is now huge and the U.S. economy is huge. Neither are going away, so must find a way to work together in this reality.

(Panelists on the call included Harvey L. Pitt, Chief Executive Officer, Kalorama Partners LLC, and former Chairman of the United States Securities and Exchange Commission; Edward Greene, Partner, Cleary Gottlieb, and Adjunct Senior Research Scholar in the Faculty of Law, Lecturer in Law; Georges Ugeux, former Executive and Head of International Listings, NYSE, and Lecturer in Law; Lorna Xin Chen, Asia Regional Managing Partner, Head of Greater China at Shearman & Sterling; and the conversation is moderated by Professor Benjamin L. Liebman, Director, Hong Yen Chang Center for Chinese Legal Studies).

TPG: Market Leader in 2020

We are proud to have led the market in 2020 in China-based US-listed IPOs. 2020 was a turbulent year for the markets and we are grateful for the trust we’ve earned over 15+ years partnering with leading management teams in China to tell their stories to the Street.

https://crm.marcumbp.com/china-accounting-insights/chinese-companies-continued-to-flock-to-u.s.-2020