Xi Jinping’s Initial Public Offering Boom | The Economist

Mein parallel Universe CloudWalk may have raised hundreds of millions of dollars in Hong Kong or New York. The company is he one of the world’s leading facial recognition companies. The technology can recognize people in milliseconds with amazing accuracy. But modern geopolitics have pushed it in a different direction.The United States has imposed sanctions on the company for alleged human rights violations due to its reputational ties to the Chinese military. Nasdaq In New York, CloudWalk is in Shanghai Star Market, a stock exchange established in 2019 to attract China’s rising technology companies. The company’s stock has risen a fifth since its debut in May.

CloudWalk is listed in Shanghai Star And Shenzhen’s ChiNext is another technology-focused marketplace at the heart of global initial public offerings (ipos) This year. Companies raised $63 billion on Chinese exchanges, compared to just $21 billion in New York and $6 billion in Hong Kong. Most of the revenue is raised by semiconductor makers, artificial intelligence and business software start-ups, robotics companies, and others developing high-end technology. Small telecom companies are flooding the Beijing Stock Exchange. Xi Jinpingthe Chinese leader.

At first glance, this is the perfection of President Xi’s plan to align a burgeoning tech industry with a thriving capital market as part of a larger effort to make China a leader in next-generation technology. It suggests progress. However, if you look a little deeper, the big picture becomes darker. State capital, or “leading capital” in Communist Party parlance, is flooding the stock market. 38 largest analyzes ipoIn the first three quarters of this year, the Chinese market combined accounted for 242 billion yuan ($34 billion), or about 50% of the cash raised, with state-owned enterprises providing 22% of the funding. I of similar samples of ipoLast year, the state capital showed 14%. The CloudWalk deal is typical. State-owned investors, including funds from the Shanghai Municipal Government, weapons makers and local governments, have raised more than 500 million yuan for his just under a third of the company’s stake.

China’s capital markets are increasingly dominated by the Communist Party, but there are other causes for the boom. Some observers believe there is just a proliferation of innovative companies meeting demand from liquid capital markets. Nicholas Aguzin, the chief executive of the Hong Kong Stock Exchange, has caused turmoil in the tech industry. ipoIn other words, the “financial big bang”. Chinese state media have also highlighted tensions with the United States. In addition to CloudWalk, several Chinese tech companies have been sanctioned.The New York market was mostly closed to Chinese companies this year (although there are some signs that things are starting to improve).

Meanwhile, China’s regulatory regime is becoming more friendly. Not long ago, new listings required cumbersome reviews. This created a backlog of orders, sometimes in the thousands, that kept private his equity investors from backing out.A new system tried in Star and ChiNext exchanges will be rolled out to other exchanges later this year. This is in line with international standards and sets the requirements for the list, but omits painstaking inspections. Liquidity and stability have also improved. Over the past five years, reforms have encouraged investment specialization. Chinese exchanges saw a drop in volatile retail trading. All of this is consistent with Mr. Xi’s publicly outlined vision of financial markets free from interference and functioning more like American markets.

But the surge in state funds can hardly be ignored. Some of the cash comes from insurance companies and pension funds, but most is mandated to invest in the public and private markets with the authority to support specific industries such as semiconductor and industrial robot makers. from government-supported funds. As Ngor Luong of the Center for Security and Emerging Technology, a think tank, points out, the funding will let other investors know which companies are worthy of funding, with additional weight. means that there is

The approach of using state funds to attract private investment has spread from the private market to the public market. Between 2015 and 2021, government-backed private equity firms raised more than 7 trillion yuan of his. Companies that acquire state capital in the early stages become more attractive to private investors later on. This is because it shows that the company fits the official vision of innovation. These businesses often benefit from other forms of government support, such as tax cuts, rent reductions, and reduced red tape.Similarly, ensuring state-backed investors ipo You can now close or close a deal.According to a banker working on Chinese ipoThis means that policymakers are increasingly successful in directing private capital to the industries they want to prioritize.

Companies involved in technology deemed critical by policymakers can now receive state capital throughout its lifecycle. Take Loongson, a Beijing-based semiconductor company that designs central processing units. Most of the company’s shares are owned by founder Hu Weiwu. However, the company was launched in 2008 with funding from the Chinese Academy of Sciences and the Beijing Municipal Government. State funds, including semiconductor backers who invested 200 billion yuan, have subsidized Loongson in recent years despite being a privately held company.when the company goes public Star This year, state investors ipopurchase at least 10% of the offering.

This kind of investment doesn’t just boost lucrative industries. Pan Fenghua of Beijing Normal University said officials have been sending messages for some time about the importance of state capital in the market. Last year, regulators began talking about “capital sprawl” that allegedly led to economic imbalances. Free market capital is causing many diseases, argued a recent editorial in a state-run newspaper. These include widening wealth inequality, environmental issues, financial risks and monopolies. In a socialist market economy like China, an editorial state must be capital-led by the Communist Party.

With so many companies receiving government investment, investors are now being forced to either buy the party’s plan or stay out of it, says a Shanghai investment manager. . Buying party plans may be an unattractive proposition. China market underperformsAside from a few rapid booms and busts, China’s major stock indices have barely gained over the past decade. About 27% of listed companies Star Between 2019 and 2021 currently: ipo price. That figure has risen to 44% of his in recently listed companies as state capital has flowed into the market. Xi Jinping’s brainchild has reached a 60% share price on the Beijing Stock Exchange.

Shanghai and Shenzhen could become world-leading destinations for technology ipos, but they’ve done it with very little global capital. China’s strict covid-19 rules and Sluggish real estate market, foreign investors are leaving the country. In October alone, a net $7.6 billion in international capital flowed out of the country’s stock market, according to the industry body, the Institute of International Finance. Market booms in New York and Hong Kong typically draw wise capital from a wide range of global investors. By contrast, Mr. Xi’s Big Bang looks painfully isolated. He believes the state can do what foreign financiers do. A bold experiment, to say the least. Xi Jinping’s Initial Public Offering Boom | The Economist

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