Chinese Executives Would Rather IPO at Home Than in the U.S.

The U.S. may be losing its appeal as a destination for Chinese companies seeking to go public. At least, that’s according to a recent survey of private enterprises conducted by Beijing’s prestigious Tsinghua university and auditor Marcum Bernstein & Pinchuk LLP (MarcumBP).

“Most executives looking forward are veering away from the United States,” said Drew Bernstein, co-managing partner of MarcumBP. According to the report, which was conducted at the start of the third quarter and surveyed over 1,200 executives, 66% of Chinese business leaders see their home market as the most attractive destination for listing, while only 18.7% of respondents put the U.S. as first choice.

While some Chinese firms continue to prefer the U.S.—last month, at least nine Chinese companies filed for an IPO on U.S. exchanges—overall, the number of Chinese companies listing on Nasdaq or the NYSE has fallen to 18 this year, down from 26 last year. It’s a trend that could continue, as recent rhetoric from Washington has created a more hostile environment for Chinese firms looking to go public in the U.S.

Last week the U.S.-China Economic and Security Review Commission advised congress to restrict access to U.S. markets for Chinese companies; President Trump has previously threatened to delist Chinese stocks, despite lacking the authority to do so; and the White house has considered preventing government pension funds from investing in Chinese companies.

Meanwhile, China has spent years trying to boost the appeal of its domestic stock markets, promoting Shanghai in particular as a destination for finance. In July, Shanghai launched the STAR Market—a Nasdaq-style bourse in Shanghai that permits pre-profit IPOs for science and technology companies.

However, a report earlier this year from the American Chamber of Commerce (AmCham) in Shanghai argued that the central government had failed in its ambition to position the city as a destination for international finance by 2020, primarily due to capital controls and “arbitrary government intervention.” The new STAR Market is “crashing,” too, as trading volume and share prices on the bourse slump.

China’s eagerness to develop Shanghai as a financial center is partly motivated by a desire to have an onshore alternative to Hong Kong—which has a judiciary and monetary authority largely separate from that in mainland China and is the leading destination for IPOs globally.

Last year, 125 companies raised $36.5 billion collectively through listings in Hong Kong, propelling the Hong Kong Stock Exchange to pole position in the rankings of IPO destinations.

Earlier that year, Hong Kong Exchanges and Clearing (HKEX), the group that manages the city’s bourse, revamped its listing rules to permit the listing of dual-class shares, which help founders retain control of a company after it goes public. Previously, Hong Kong’s refusal of dual-class listings cost the exchange Alibaba Group’s lucrative $25 billion IPO, as the e-commerce giant opted to go to New York instead.

Since the rule change, however, leading mainland tech firms—which favor dual class options—have had blockbuster IPOs in Hong Kong, including smartphone maker Xiaomi and consumer services platform Meituan. The two companies accounted for $8.9 billion of the total raised through IPOs in Hong Kong last year.

Despite five months of protests that have hammered Hong Kong’s economy, the local stock market continues to thrive. This year, Alibaba is preparing for a $13 billion secondary listing on the exchange which should help Hong Kong top the charts once again. So while 66% of Chinese firms say they would list at home, perhaps Hong Kong will be close enough.