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By: Tom Smith and David Wolf
It was supposed to be the listing that changed the global markets.
Alibaba affiliate, world’s most highly-valued FinTech company and largest unicorn in history Ant Group was poised for a $34.5 billion initial public offering – the largest IPO ever. Even more remarkable, the offering was not going to be in New York or London, but in Shanghai and Hong Kong. The listing was to have marked the apogee in China’s effort to bring large IPOs back from overseas to lend prestige and stability to Chinese stock exchanges, and deliver a hard slap in the face to the U.S. government for building in increasingly complex legal framework around Chinese firms operating in the United States.
Then, at the last moment, Ant founder Jack Ma was called in to see regulators in Beijing. Soon after, Ant suspended its listing without setting a new date for the offering and roiled the global financial community. The Chinese government hinted at imminent significant changes to the fintech regulatory environment. Investors, underwriters and the company itself are now in a holding pattern, their prospects uncertain.
Shocking as it is, why should anyone else care?
It would have been easy to see the Ant listing as a reflection of a decline in New York’s importance in international financial markets. As it turns out, what transpired proves Chinese stock exchanges are a long way from threatening the dominance of their counterparts in the U.S. and Europe.
In the past two years, the Trump Administration set fire to the regulatory welcome mat extended to Chinese companies more than 40 years ago. The Holding Foreign Companies Accountable Act, which would force companies listing in the U.S. to operate as though they operated here, was aimed directly at Chinese companies. With White House sponsorship, the measure sped through the Senate. Washington posted a sign on New York that some chose to read as: “Chinese Companies Not Welcome.”
For its part, Beijing knows the country’s largest, most prosperous and most stable firms must use home markets as their primary listing venues if its local stock exchanges are to evolve beyond speculative casinos. A decades-long effort, involving draconian restrictions on what companies could list overseas, on moving funds offshore and on individual ownership of certain securities, accompanied by a constant drumbeat of direct pressure on firms to list in Shanghai, Shenzhen, and Hong Kong, had already begun to bear fruit before Trump arrived on scene. And Ant understood a fact discovered late by Chinese firms listed overseas: By listing close to home, Ant could tap the capital of its own customers, people who know the Ant brand and value proposition and thus likely to pay a premium for its stock.
Yet despite winds blowing from both Washington and Beijing that should push Chinese companies homeward, U.S. markets remain deeply attractive for Chinese companies. Since Jan. 1, Chinese firms have placed more than $9 billion in U.S. initial public offerings on U.S. exchanges. The firms still find it easier to list on a U.S. exchange than one at home. Listing in the U.S. provides companies a critical means to circumvent China’s strict currency controls. And even though pools of underused capital sits in Chinese bank accounts, the U.S. stock exchanges still offer the deepest and most liquid pools of capital on the planet. Finally, the prestige of listing in the U.S. remains attractive to Chinese companies, which seek the validation of the world’s most sophisticated investors as a way to establish credibility among customers at home and worldwide.
With Beijing’s sudden and arguably capricious move against Ant, Chinese companies have two more reasons to list in the U.S.: legal protections and regulatory transparency. While all listings come with regulatory hurdles that only begin with the IPO, U.S. requirements remain clear and transparent. Even if the Holding Foreign Companies Accountable Act passes the House of Representatives and ultimately becomes law, the promise of U.S. law is simple: comply with published regulations, and you will be allowed to list and operate. China makes no such promise: its laws are framed to be open to wide interpretation by regulators and government officials, and its institutions prioritize the centralization of power with the Chinese Communist Party.
The Shanghai, Shenzhen, and Hong Kong exchanges are perhaps most damaged by all of this. After years attempting to build credibility as global marketplaces, they have been revealed as fatally exposed to sudden storms from Beijing. Proven to be true markets no longer, they must bear the forlorn label of “policy stock exchanges.” Chinese companies – and global investors – will inevitably choose more open, more transparent pastures.
That a company of such size, stature, and pedigree can fall victim to such changes portends a new era in which China’s role in business and the world will become more disruptive and less predictable. A new Administration in Washington will not alter that direction, and indeed may reenforce it. Connections are not enough: companies need to tap the guidance of advisors who can help anticipate, prepare for, and respond to these "interesting times” without lasting damage to business and reputation. Allison Advisory is ready to help.
Tom Smith is a strategic, highly skilled corporate communications professional with a proven 24-plus-year track record of leading and implementing corporate campaign programs. He has led numerous multi-million-dollar global accounts and as president of Allison+Partners' North American corporate practice, he brings deep capability in numerous industries, including financial services, hospitality, professional services, technology, education, healthcare and industrial supply. His specialties include integrated communications, corporate brand positioning, thought leadership, executive visibility, B2B marketing, influencer management, media relations and investor relations.
David Wolf is the managing director of Allison Advisory at Allison+Partners. He brings three decades of experience to his role counseling clients on managing the unique operational, communications and marketing challenges that arise when companies undertake change or address significant challenges in their operating environment. As a recognized thought leader in the industry, David specializes in navigating the unique communications and marketing challenges clients face in China. He advises multinationals expanding into the region, and guides Chinese companies on communications strategies when entering international markets.