Drew Bernstein
For decades, Chinese companies have routinely listed on U.S. exchanges like the New York Stock Exchange (NYSE) and NASDAQ, attracted by the prestige and access to capital that these markets offer. However, this trend came to an abrupt halt in July 2021 when Chinese authorities intervened in the IPO of ride-sharing app Didi Chuxing, ordering its delisting from the NYSE over concerns about data security. This marked the beginning of a two-year drought in Chinese IPOs on U.S. exchanges.
Now, the listing freeze appears to be thawing. China has clarified its overseas listing regulations, allowing domestic firms to list abroad under a newly established approval regime. The first company to receive approval from the China Securities Regulatory Commission (CSRC) was Cheche Group (NASDAQ: CCG), a leading online marketplace for auto insurance in China. Cheche’s share price soared from $10 to $200 on its first day of trading, although it has since receded. This enthusiastic response suggests that despite the recent pause in Chinese IPOs, U.S. investors may still have an appetite for Chinese tech stocks.
The Historical Context
Chinese tech companies have a history of leveraging U.S. markets to fuel their growth. In sectors like e-commerce, solar energy, and electric vehicles (EVs), Chinese companies have used capital raised from U.S. IPOs to outpace their global competitors. These cross-border listings were also highly profitable for Wall Street banks, which facilitated the deals.
However, the Didi delisting in 2021 highlighted the risks associated with Chinese companies listing abroad without explicit approval from Chinese authorities. In response, the CSRC introduced a formal approval process for overseas listings in April 2023, aimed at providing greater regulatory oversight and boosting investor confidence. This process is now mandatory for any Chinese company that wishes to list in the U.S., Hong Kong, or other foreign markets.
The New Regulatory Landscape
The CSRC’s approval process has started slowly, drawing criticism from some of China’s leading venture capitalists. However, since mid-August 2023, the commission has begun approving a backlog of companies, signaling the potential for a new wave of Chinese IPOs on U.S. exchanges.
In theory, having the backing of the Chinese government should reassure investors, as it provides a seal of approval for the variable interest entity (VIE) structure commonly used by Chinese tech companies to bypass foreign ownership restrictions. Moreover, Chinese regulators are now in a better position to vet companies and ensure that only reputable firms list abroad, which could enhance China’s reputation with global investors.
The Next Wave of Chinese IPOs
The initial batch of companies approved by the CSRC for overseas listings is focused on the EV and mobility sectors, which have been hotbeds of innovation in China. Notable upcoming IPOs include:
Zeekr: A premium EV manufacturer owned by Geely, Zeekr is seeking to raise $1 billion in a U.S. IPO at a valuation exceeding $13 billion. Zeekr shipped 72,000 vehicles in 2022 and aims to double that figure this year, with plans to expand into European markets. However, with Europe considering measures to protect its domestic auto industry from Chinese imports, it remains to be seen how warmly investors will welcome another Chinese EV brand.
WeRide: A pioneer in autonomous driving technology, WeRide develops fully autonomous robotaxis, buses, mini-buses, and street sweepers. Founded by the former chief scientist of Baidu’s autonomous driving unit, WeRide operates driverless taxis in multiple cities, including Beijing and Guangzhou, as well as in the UAE. The company filed confidentially for a $500 million IPO in March 2023 and was approved by the CSRC in August. WeRide’s blue-chip investors include Carlyle Group, Bosch, and the Renault-Nissan-Mitsubishi Alliance, but the company has yet to disclose its financials, leaving investors waiting to decide on its potential.
Innovusion: Specializing in LiDAR systems essential for autonomous driving, Innovusion has secured backing from NIO, Temasek, Hermitage Capital, and NIO Capital. Innovusion’s LiDAR sensors are standard in NIO vehicles, and the company has also attracted customers like Faraday Future and Pony.ai. However, the company faces competition from Hesai Group (NASDAQ: HSAI), whose share price has declined by 45% since its IPO in February 2023. Innovusion’s management will need to convince investors that its technology can lead to stronger market performance.
Will Investors Bite?
While the specific success of these upcoming IPOs will depend on their individual merits, the fact that China has established a clear regulatory framework for overseas listings is a positive development. After two years of uncertainty, the stage is set for a potential revival of Chinese IPOs on U.S. exchanges.
However, challenges remain. Investor sentiment towards Chinese stocks has been dampened by the regulatory crackdowns of recent years, and the geopolitical tensions between the U.S. and China continue to cast a shadow over cross-border investments. Additionally, the performance of recent Chinese IPOs, such as Hesai Group, suggests that market conditions remain volatile.
Ultimately, whether investors will embrace this new wave of Chinese IPOs will depend on a combination of factors, including the companies’ financial health, market conditions, and broader geopolitical dynamics. For now, there is cautious optimism that the overseas listing drought may finally be over.
