China’s Regulatory Crackdown of Companies Listed on Foreign Exchanges Could Cut $2 Trillion From US IPO Market

A series of new regulations regarding the public listings of Chinese companies on foreign exchanges could end up having a significant impact on the US IPO market.

Over the past 20 years, Chinese tech companies have favoured the American stock market, given its abundant investor base and easy-going regulatory environment. However, a recent regulatory shift by Beijing could potentially put a cap on the American IPO market altogether. As reported by Bloomberg, the Chinese State Council has announced that all companies with over 1 million users wishing to list on overseas exchanges will be required to gain approval from the country’s freshly appointed cybersecurity regulator.

Previously, Beijing revealed intentions to alter regulations pertaining to “the overseas listing system for domestic enterprises,” in addition to administering control of international data flows and security. Experts cited by Bloomberg suggest that these latest moves could potentially lead to an end of Chinese IPOs in the US. “It’s unlikely there will be any US-listed Chinese companies in five to 10 years, other than perhaps a few big ones with secondary listings,” explained Peking University’s Guanghua School of Management in Beijing professor Paul Gillis.

According to figures put out by the US-China Economic and Security Review Commission and later cited by CNBC, there were approximately 248 Chinese firms listed across US exchanges, amounting to a combined market capitalization of over $2.1 trillion. Now, however, that figure has fallen by nearly one-third over the previous six months, according to the Invesco Golden Dragon China ETF (PGJ), following the latest regulatory tightening.

Government scrutiny hit a tipping point in June, when Chinese-based ride-hailing app Didi Global Inc went ahead with its NYSE listing against objections from regulators, which urged the company to make its public debut in Hong Kong instead. Soon after, shares of Didi plummeted by almost 20%, after Beijing regulators announced a cybersecurity inquiry, ultimately halting the company’s new user registrations.

Information for this briefing was found via Bloomberg and CNBC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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