2021 was a great year for Chinese IPOs in the US—until Didi

A short-lived IPO success story.
A short-lived IPO success story.
Image: REUTERS/Tingshu Wang
We may earn a commission from links on this page.

For the first half of 2021, there were no signs of decoupling between China and the US in one space: IPOs.

During the first six months of the year, 34 Chinese companies raised a total of $12.5 billion from listings on US exchanges, according to Refinitiv, a news and data platform under the London Stock Exchange Group. That represented a 561% jump from the same period in 2020, which saw a hit to IPO activity due to the pandemic in the first half. Chinese companies in total raised around $12 billion for the whole year after a recovery in the second half.

The amount raised so far in 2021 accounted for about 15% of the roughly $80 billion raised via US IPOs by Chinese firms since 2010, according to Refinitiv data.

The firms that listed in the US this year covered a range of industries, including retail, consumer goods and services, and transport, in addition to the technology sector. The frenzy of first-half listings came despite moves in the US to demand more financial transparency from Chinese firms listed there, and could reflect pent-up demand from pandemic-hit 2020.

After all, 2020 ended up being a pretty good year for listings, with about $10 billion raised in the second half. But if this year’s trend had continued, 2021 could have been the best ever year for IPOs in the US, better even than 2014 when Alibaba raised a record $25 billion.

But in the wake of this year’s biggest US listing by a Chinese firm—ride-hailing giant Didi Chuxing debut on June 30 that helped it raise $4.4 billion—Chinese regulators appear to have shut down the party.

Just two days after its listing, China’s moved to open a cybersecurity review into Didi on national security grounds, stemming from concerns over the possible transfer of user data out of China. The internet regulator also opened a cybersecurity review of another US-listed Chinese firm, online commercial freight platform Full Truck Alliance, which went public about a week before Didi, raising $1.6 billion, according to Refinitiv. The probes shaved hundreds of billions of dollars off the value of Chinese tech firms, and made it clear Chinese listings in the US face a pincer action from regulators in both countries.

In March, the US Securities and Exchange Commission adopted a law that requires overseas firms to let US auditors review their financial documents, with those who don’t comply facing delisting from the US exchanges. Chinese firms listed in the US have long refused to let US regulators review their audits, citing Chinese rules.

Meanwhile, a proposal from China’s top internet regulator over the weekend would require companies that have more than 1 million users to go through extra security review checks, which could last as long as three months or above, before listing overseas. It’s also possible that regulators could close a loophole, the variable interest entity arrangement, that many tech firms have used in order to list overseas and circumvent Beijing’s rules on foreign ownership in certain sectors.

“The Cyber Administration of China will play an indispensable regulatory role in the future overseas listing of data-rich Chinese companies.  This will create further regulatory hurdles and uncertainties for Chinese companies seeking to tap the overseas capital market,” said Angela Zhang, associate professor of law at the University of Hong Kong and the author of the book Chinese Antitrust Exceptionalism.

“However, I don’t think the Chinese government is attempting to leverage this cybersecurity review to ban foreign listings.  At the same time, this new requirement does seem to increase the appeal of other listing venues such as the Hong Kong and mainland stock exchanges,” she added.

For now many companies are being cautious. ByteDance, for example, had earlier this year begun preparations for an IPO of its China assets, according to Bloomberg, but amid China’s new data security concerns it’s unclear when such a listing will take place. As more companies rethink or delay listing plans, it seems quite likely that the second half won’t match up to 2021’s lucrative first half.