Drew Bernstein
The state of Chinese IPOs has become a puzzling scenario as we step into 2024. Despite Chinese stocks logging their third consecutive year of negative returns in 2023, Chinese companies still made up nearly 25% of new listings in the United States. The largest potential IPO in 2024 could even come from China, reflecting the complex and often contradictory nature of the current market.
A Tale of Two Markets
At the beginning of 2023, market experts predicted that China’s economy would bounce back as consumers indulged in revenge spending following years of COVID-19 lockdowns. Additionally, they anticipated a recovery in the IPO market as investors and companies adjusted to higher interest rates and lower valuations. However, these predictions didn’t materialize as expected.
Instead of splurging, Chinese consumers turned to bargain shopping, driven by declining real estate values and a sluggish employment outlook. The Hang Seng index in Hong Kong continued its downward trajectory, losing 14% in 2023, marking its fourth consecutive year of losses. Major Chinese tech stocks, like Alibaba and Tencent, continued to trade near multi-year lows.
As global funds lost confidence in Chinese stocks, IPOs on the Hong Kong Stock Exchange plummeted to $5.9 billion—the lowest level in 20 years. Meanwhile, on mainland China’s exchanges, IPO activity was more resilient, but even there, funds raised on the Shanghai Stock Exchange fell by 49% due to tighter regulatory controls introduced in August to bolster investor confidence amidst falling share prices.
In the United States, Wall Street had hoped that high-profile IPOs, such as those by ARM Holdings and Birkenstock, would spark renewed interest in public offerings. However, after an initial dip in share prices, several companies postponed or canceled their IPO plans. In 2023, there were 108 IPOs on U.S. stock exchanges, raising $19.4 billion—an improvement from the dismal 2022 but still a lean year for equity markets. Of these, 25 IPOs were launched by China-based companies, though most were small, with minimal institutional participation and volatile trading.
The Case for a Comeback in 2024
Despite the gloomy backdrop, there are reasons to be optimistic about a resurgence in Chinese IPOs in 2024.
Big Names in the Pipeline
One of the most anticipated IPOs in 2024 is Shein, an AI-powered fast-fashion giant that has outperformed global competitors like Zara and H&M. Shein’s rapid growth, fueled by its innovative use of social media marketing, has made it a household name worldwide. The company filed confidentially for an IPO with the SEC in November 2023, targeting a valuation rumored to be between $60 billion and $90 billion. Despite controversies surrounding its business practices, Shein is positioning itself as a responsible global corporate citizen, which could help it attract investors when it goes public.
Another significant IPO candidate is Zeekr, an electric vehicle manufacturer owned by Geely, the Chinese auto giant that also owns Volvo. Zeekr is expected to launch its IPO in February 2024, following the Chinese New Year. The company has made headlines with its new 007 sedan, which offers a 15-minute charge time and a driving range of up to 540 miles, all at a price below $30,000. While competition in China’s EV market is fierce, Zeekr has the potential to make significant inroads in international markets.
Streamlined Approval Process
In 2023, China implemented a new requirement for companies seeking to list overseas: they must obtain approval from Chinese regulators. Initially, this new process created uncertainty, but regulators have since become more responsive. By the end of 2023, the China Securities Regulatory Commission (CSRC) had approved 72 applications to list in New York or Hong Kong, indicating that the regulatory environment might be stabilizing.
Limited Funding Options
Chinese companies face limited options for growth financing. If the market doesn’t rebound significantly, the CSRC may further restrict domestic IPO approvals in Shanghai and Shenzhen, as PwC predicts a nearly 50% decline in proceeds. Venture capital funding has also plunged by more than 90% since 2021, marking 2023 as the worst year since 2010. New regulations could make it even harder to launch new funds domestically in 2024, particularly for companies outside of the government-promoted hard tech sectors like semiconductors, AI, and quantum computing.
Conclusion
Given these factors, 2024 could be the year when Chinese IPOs regain some of the momentum they’ve lost in recent years. High-profile listings like Shein and Zeekr could attract global attention and help revive interest in Chinese equities. However, the market remains volatile, and predictions about China’s financial landscape are best made with caution.
As the global economy continues to evolve, investors will be watching closely to see whether Chinese IPOs can stage a meaningful comeback or whether the challenges of the past few years will continue to cast a long shadow.
