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Another Jack Ma company could break the world’s IPO record. But this time, the U.S. is missing out

September 21, 2020, 10:30 AM UTC

On the morning of Sept. 19, 2014, the opening bell rang in the New York Stock Exchange, and a crescendo of cheers, whistles, and applause erupted on the crowded trading floor. Alibaba Group, the Chinese e-commerce giant that Jack Ma founded in 1999, had broken the record for the largest initial public offering in history.

As the bell clanged in Manhattan, fireworks exploded in the night sky above Alibaba’s headquarters in Hangzhou, China, where hundreds of company employees had gathered outdoors in the rain for the occasion. A live feed of the exchange floor played on a huge screen, framed by a replica NYSE facade.

Alibaba’s IPO raised $25 billion, and a NYSE press release touted it as “emblematic of the truly global nature of capital markets.”

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Six years later, Jack Ma may again see a company he founded break the record for the largest IPO in history. This time, though, the experience won’t have an American flavor.

Chinese fintech firm Ant Group is going public in an IPO that analysts say could raise as much as $30 billion and occur as soon as October. (Ant didn’t disclose its listing date or how much it aims to raise in its IPO prospectus. Ant declined to comment.)

Ant runs Alipay, the world’s biggest mobile payment platform. In June, 711 million people used Alipay. The platform is central to consumers and businesses in China, where credit cards never really took off and even cash has become scarce. Ant’s rapid growth since its 2014 launch helped it soar to an estimated value north of $200 billion, for which it’s considered the world’s most valuable privately held “unicorn.” 

If Ant breaks the IPO record, the festivities will be limited to a single time zone: Ant, based in Hangzhou, is going public with dual listings in Hong Kong and Shanghai. It has shunned New York altogether. 

Cofounder Jack Ma celebrates Alibaba’s IPO on the New York Stock Exchange in 2014.
SCOTT EELLS—BLOOMBERG VIA GETTY IMAGES

If Alibaba’s groundbreaking IPO represented the exuberant global mood of capital markets in 2014, Ant’s debut is the most high-profile reflection yet of how those same markets are now drifting apart.

The U.S.-China feud in recent years has escalated from gripes about trade into a full-throttle campaign by the Trump administration to sever the ties that bind the world’s two largest economies. The effort has reached the U.S. markets, and some U.S.-traded Chinese firms have opted to delist in take-private deals or pursue secondary listings closer to their home markets.

In June, NYSE-listed Chinese car-listings site Bitauto announced a $1.1 billion deal to go private. That same month, China’s biggest online classifieds firm, NYSE-listed 58.com, said it would go private in an $8.7 billion deal. Hong Kong–listed Chinese chipmaker SMIC delisted from the NYSE last year and listed in Shanghai in July in China’s biggest IPO in a decade. 

“In the past two years, the odds for [Ant] listing in New York have just been getting lower,” says Bruce Pang, head of macro and strategy research for China Renaissance Securities. “It has to be thinking about all these uncertainties and risk factors.”

Those “uncertainties” include a bill, passed unanimously in the Senate in May, that would give the Securities and Exchange Commission the power to delist from U.S. exchanges foreign companies that don’t comply with U.S. auditing requirements. The bill mandates that certain foreign firms disclose whether Chinese Communist Party members sit on their board, information that China’s state secrets law prohibits domestic firms from sharing. Bill sponsor Sen. John Kennedy (R-La.) said it’s aimed at stopping Beijing “from cheating on U.S. stock exchanges.”

Consumers Scan QR Of Alipay To Pay At Local Market In Wenzhou, China.
Visual China Group/Getty Images

In August, Treasury Secretary Steven Mnuchin recommended that the SEC delist companies that don’t cooperate with U.S. accounting rules as soon as the end of 2021—an even earlier timeline than the Senate bill proposed.

Ant itself has already hit a wall in Washington. It tried to buy U.S. money transfer company MoneyGram to expand its presence in the U.S. and diversify a business that is overwhelmingly China-based. U.S. regulators blocked the $1.2 billion deal over national security concerns in January 2018.

Ant experienced these “attacks on Chinese companies, particularly tech companies,” says Xiaomeng Lu, senior geo-technology analyst at political risk consultancy Eurasia Group. “That’s why Ant decided, ‘We don’t have a big market in the U.S.; we are not raising money in this capital market; we should look at other options for our [IPO].’ ”

People familiar with the matter said a dual listing in Hong Kong and Shanghai was Ant’s first choice for an IPO.

It’s not just that the U.S. has become inhospitable to Chinese firms like Ant, it’s that markets on Ant’s home turf are increasingly friendly. Shanghai’s Nasdaq-style STAR Market, where Ant will list, launched in 2019 with relaxed listing criteria to attract tech firms. On July 22, the Shanghai Stock Exchange added STAR-listed firms to its Shanghai Composite Index calculations to reflect the growing clout of tech listings.

After missing out on Alibaba’s massive 2014 IPO, the Hong Kong Stock Exchange in 2018 reformed some listing criteria to lure tech companies, like allowing companies with a weighted voting-rights structure to list and letting “innovative” Chinese companies listed overseas to pursue secondary listings in Hong Kong.

The recent changes in Hong Kong and mainland exchanges have made listing there “less complicated and less time-consuming,” Pang says, adding that a closer-to-home listing could help Chinese firms achieve higher valuations and better liquidity compared with a U.S. listing. 

Chinese companies like Ant can count on domestic familiarity with their products to attract investor interest and raise capital onshore in Shanghai, says Michael Wu, a senior equity analyst at Morningstar Investment Management in Hong Kong. China’s retail investors especially will be drawn to a brand whose name and products they know, Wu says. 

Hong Kong and Shanghai listings also mean Ant is raising funds nearer to Southeast Asia, where it has invested in fintech startups in Thailand, Indonesia, Myanmar, and the Philippines. All told, listing in Hong Kong and Shanghai over New York is “the easier way for Ant,” Pang says. 

What’s easier for Ant makes things harder for U.S. investors seeking a piece of the blockbuster IPO. Investors in the U.S. are able to buy shares in Hong Kong–listed companies and will have access to Ant’s Hong Kong shares. Still, there are operational challenges in monitoring a market 12 hours ahead of New York, Lu says. Ant’s Shanghai-listed shares, meanwhile, are almost inaccessible to U.S. investors. Foreign investors can purchase shares in mainland-listed companies only through strictly regulated trading programs limited to a small number of institutional investors.

In the past two years, the odds for [Ant] listing in New York have just been getting lower. It has to be thinking about all these uncertainties and risk factors.

Bruce Pang, head of macro and strategy research for China Renaissance Securities.

U.S. exchanges, meanwhile, miss out on the listing fees, transactions, and trading activity that a giant IPO like Ant’s would bring. 

Shares of Ant-affiliate Alibaba in New York have more than quadrupled since their debut and reached a new high on Sept. 1. Many U.S. investors see Ant as having similar growth potential, since Ant’s huge user base, high valuation, and rapid growth are reminiscent of Alibaba in 2014. “If these types of companies keep going home [to China], U.S. investors will not have a direct opportunity to invest in them,” Lu said. 

The size of that missed opportunity is enormous. The U.S.-traded Chinese firms that could be delisted by the Senate bill have a combined market capitalization of around $1 trillion, roughly 3% of the U.S.’s total equity market cap, according to a June China Renaissance report.

At the same time, there isn’t “a wholesale abandonment” of the U.S., Lu says. Beike, China’s largest online property platform, raised $2.5 billion on the NYSE in August. Electric-vehicle maker Xpeng raised $1.5 billion in an August NYSE debut. Another Chinese EV firm, Li Auto, raised $1.1 billion in a Nasdaq IPO in July.

Chinese firms are still listing in the U.S., Lu says, “but if you consider all of their funds raised in the past few months, it’s a much smaller amount compared to the companies considering [listing] at home or [going] private.”

Chinese companies outside the high-tech realm like Haier and Midea—both consumer appliance makers—will likely keep pursuing U.S. listings, says Alicia Garcia-Herrero, chief economist for Asia-Pacific at investment bank Natixis. But “big, iconic companies,” especially those in technology, will be part of the “universe” that shies away.

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The 5 biggest Chinese IPOs of 2020

1. SMIC

Date, location of IPO: 7/16, Shanghai
Amount raised: $7.6 billion China sees Semiconductor Manufacturing International Corp. as key to achieving its goal of semiconductor self-sufficiency. SMIC delisted from NYSE in 2019; it trades in Hong Kong too.

2. Beijing-Shanghai High Speed Railway

Date, location of IPO: 1/16, Shanghai
Amount raised: $4.5 billion The rail operator runs the 800-mile line between China’s two largest cities. Its passenger volume, revenue, and profit have plummeted because of the coronavirus.

3. JD.com

Date, location of IPO: 6/18, Hong Kong
Amount raised: $4.4 billion The Hong Kong listing of JD.com, China’s second-largest online retailer behind Alibaba, was a secondary offering. The e-commerce giant has traded on Nasdaq since 2014.

4. NetEase

Date, location of IPO: 6/11, Hong Kong
Amount raised: $3.1 billion The Hong Kong debut was a secondary offering for China’s second-largest gaming firm, which has traded on the Nasdaq for 20 years. Its sales have boomed during the pandemic.

5. Yum China

Date, location of IPO: 9/10, Hong Kong
Amount raised: $2.2 billion The NYSE-listed parent of KFC and Taco Bell in China flopped in its secondary listing in Hong Kong. Its debut was the worst among billion-dollar listings on the exchange in over a year.

A version of this article appears in the October 2020 issue of Fortune with the headline “An IPO coup for the trade war age.”