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Twelve months ago, Ant Group—the fintech subsidiary of Chinese tech giant Alibaba—was primed for the world’s biggest-ever IPO: a $37 billion dual listing in Hong Kong and Shanghai.

Ant’s debut was going to showcase China’s economic vigor amid the pandemic and shatter all previous IPO records.

Then, on Nov. 3 of last year, Chinese regulators, without any warning, unceremoniously pulled the plug on the firm’s listing the week it was set to make its public debut. One big reason? Jack Ma, Alibaba’s brazenly outspoken founder, had publicly criticized the government’s conservative stance toward financial risk. “Without risk, no innovation can happen in this world,” said Ma at a conference in Shanghai in late October 2020.

The Monday after Ma’s comments, state regulators summoned him and other Alibaba executives to a closed door meeting in Beijing. The next day, Ant’s IPO was canceled.

In Beijing’s view, the company had grown too big for its britches, and the halting of its IPO sent a warning sign, says Ivan Platonov, research manager at China-focused investment research firm EqualOcean: If a Chinese company wanted to raise public capital, it needed to please Beijing first.

Nine months later, the government illustrated what would happen if a company didn’t learn from Ant’s mistake.

On June 30, Chinese ride-hailing giant Didi went public, raising $4.4 billion on the New York Stock Exchange. Chinese authorities were blindsided. Months before Didi’s IPO, China’s cybersecurity watchdog encouraged the company to delay its IPO and examine its network security to ensure sensitive data wouldn’t fall into the hands of U.S. regulators, according to the Wall Street Journal. Beijing assumed Didi would wait to go public until the company had at least addressed the government’s worries.

Authorities cracked down on Didi’s business days later, prohibiting the app from signing up new users and then banning app stores from hosting Didi’s platform. Beijing also announced new, tough rules for Chinese firms’ offshore listings that require domestic firms to obtain state approval before going public overseas.

In the weeks that followed, China introduced new, sweeping guidelines on data, antitrust, and cybersecurity practices, adding further pressure on firms hopeful for an offshore listing.

Ant’s scuppered IPO and the fallout from Didi’s listing have ushered in an era of the unknown for Chinese companies eyeing the public markets. Some have combated the uncertainty by retreating to bourses closer to home—in Hong Kong or the mainland. But for others, even those venues are too risky, and they’ve put their IPO plans on indefinite hold. Chinese companies are now “much more cautious on overseas listings,” especially as they wait for regulatory clarification, says Bruce Pang, head of macro and strategy at China Renaissance Securities.

“Shock of the century”

Beijing’s crackdown on Ant’s mega IPO stunned the financial world. “This has gone from the deal of the century to the shock of the century,” Francis Lun, CEO of Hong Kong–based GEO Securities, told Reuters the day that Beijing pulled Ant’s listing. “The Communist Party has shown the tycoon who’s boss,” he said, referring to Ma.

But by January, the opportunities presented by China’s rebounding economy outweighed any fears.

From January to July this year, Chinese listings on American exchanges raised a record $12.8 billion. U.S. investors “were optimistic about China at a time when most countries still struggled with COVID-19 and were dealing with shutdowns,” says John Lau, head of Asian equities at investment firm SEI. “China was in better shape and on a recovery path sooner than others.”

But the Chinese IPO hot streak came to a halt when Beijing cracked down on Didi in July, signaling that its interference in Ant’s IPO wasn’t a one-off.

At the same time, Washington turned hawkish toward Chinese listings. The U.S.’s Securities and Exchange Commission (SEC) Chairman Gary Gensler in July called for a pause on U.S. IPOs of Chinese companies and then listed new disclosure requirements for those firms seeking to list in New York.

Most companies are now waiting on Beijing to clarify its new rules on data, antitrust, algorithms, and variable interest entities or VIEs—the obscure loophole that has allowed Chinese companies to go public on American exchanges, sidestepping China’s restrictions on foreign investments in domestic businesses.

China’s Securities Regulatory Commission is now spearheading an initiative with other regulatory bureaus to draft rules to govern the overseas listings of Chinese firms with VIE structures, the WSJ reports. The government is ramping up hiring at its antitrust agency. And Beijing recently passed the Data Security Law, which governs how both domestic and foreign corporations manage their data, and the Personal Information Protection Law, which dictates companies’ use and storage of customer data. Both new laws remain scant on details, leaving businesses in the dark as to how they will be enforced.

Many experts say the sequence of events has abruptly ended the golden age of Chinese companies listing in the U.S. The prospect of any Chinese company listing in New York in the foreseeable future is highly unlikely, says Jay Ritter, finance professor at the University of Florida who focuses on IPOs. Since last November, at least 10 Chinese firms have paused their listings or moved their planned IPOs from the U.S. to Hong Kong to hedge against the multitude of risks, says Platonov.

Podcast platform Ximalaya, which filed to list on the NYSE in April, shelved its U.S. listing plans after Chinese regulators pressured the firm to move its IPO to Hong Kong to allow Beijing more oversight of its business, according to a Reuters report. Tencent- and Sony-backed Ximalaya filed for a listing in Hong Kong last month.

Little Red Book (“Xiaohongshu” in Mandarin), a lifestyle content platform akin to a mashup of Instagram and Pinterest, paused its U.S. float and is considering a Hong Kong listing that could raise $1 billion, says Bloomberg. Other technology companies including bike-sharing platform Hellobike and dating app Soul have formally scrapped their New York IPO plans, while delivery firm Lalamove and A.I. chip company Horizon Robotics are looking to move their U.S. listings to Hong Kong.

Now any Chinese company wanting to go public in New York first will need a host of “compelling reasons” to convince the regulators in Beijing, says Ritter. Then, firms will need to find the sweet spot between the “competing disclosure requirements” of China’s new rules and the U.S.’s tightened listing requirements, says Winston Wenyan Ma, adjunct professor at the NYU School of Law and author of The Digital War: How China’s Tech Power Shapes the Future of A.I., Blockchain and Cyberspace.

On Monday, Chinese biotechnology firm LianBio raised $325 million in its public debut—the first China-focused company to list in the U.S. since Didi’s June offering. Still, LianBio’s ability to list in New York may have been helped by a couple of factors: The company doesn’t have a VIE structure or hold “personally identifiable health information of patients in China,” it said in its IPO prospectus. The biotech company warned that “significant legal and operational risks associated with having the majority of our operations in China” still remain.

Homecomings

Chinese firms’ retreat from the U.S. promised to benefit Hong Kong, and, initially at least, the city’s main bourse did experience a windfall of both primary and secondary listings. Chinese tech debuts, in particular, fueled the Hong Kong Stock Exchange’s (HKEX) best first half ever in terms of IPO proceeds from January to June this year.

But after the Didi episode and Beijing’s introduction of overseas IPO regulation, even Hong Kong wasn’t a viable escape route for Chinese tech firms fleeing uncertainty.

In the third quarter, HKEX’s IPO proceeds plunged 40% from a year earlier, the exchange said in an earnings release last week. Likewise, the number of issues on the HKEX dropped to 24 in this year’s Q3, compared with 38 listings a year earlier. Hong Kong’s listing pipeline grew so cold that even Australia’s IPO market surpassed Hong Kong’s in October for the first time in two years.

Some mainland firms’ listings have become tangled up in China’s vague new data rules.

Hangzhou-headquartered We Doctor, an online health platform backed by Tencent, had sought a $3 billion Hong Kong IPO this year. But the HKEX wanted guarantees from the health startup that the company was in compliance with Beijing’s data policies. We Doctor has now paused its IPO plans; the company wants to refile in Hong Kong, but hasn’t yet released a timeline.

China’s rules for homegrown companies going public in Hong Kong, which is classified as an overseas bourse, could also become stricter. Chinese companies seeking a Hong Kong listing are waiting on further details and clarification from Beijing on what the government’s host of new rules will entail.

China’s sweeping regulatory crackdown also dampened investor sentiment overall, making the market less amenable to Chinese IPOs. Mainland Internet company NetEase’s music arm Cloud Village has delayed its Hong Kong offering that was set to raise $1 billion. Property platform Anjuke, which was also targeting a $1 billion offer, has scrapped its listing plans until sentiment improves.

In the last year, at least 10 mainland companies have delayed their Hong Kong listings that could have raised some $6 billion.

Hong Kong was expected to be a “less hostile place for Chinese companies to go public [overseas]…while still allowing global investors easy access,” says Lau. “But the [bourse’s] continued success will depend on the actions of regulators in the coming months.”

Waiting game

Beijing is introducing domestic capital market reforms to open China’s markets and increase foreign investment in the country. It launched a Nasdaq-like STAR Market in 2019, under the umbrella of the Shanghai Stock Exchange (SSE), to allow easier public financing for its homegrown tech firms and unveiled the new Beijing Stock Exchange this year in a bid to fund young startups as U.S. money dries up. At the same time, it continues to promote an environment of uncertainty, even for Chinese-owned corporations that want to list on domestic exchanges.

PC maker Lenovo recently withdrew its $1.5 billion listing on the STAR, saying that the information submitted in its approved IPO prospectus may have been out-of-date—a symptom of China’s stricter scrutiny on domestic listings. The SSE additionally halted 57 IPO applications last month, citing outdated financial information. The Shanghai bourse has now resumed the review of at least 12 of these applications—like that of agri-tech giant Syngenta’s $10.2 billion offering—after the companies submitted updated information. Still, the mass listings freeze has only drawn further attention to the tighter oversight that Chinese firms now face even from homegrown bourses.

The new rules on overseas listings, meanwhile, could translate to longer waiting times for firms looking to list abroad, which will further “dampen investor sentiment, depress valuations for IPOs in the U.S., and ultimately make it even more difficult for Chinese firms to raise funds overseas,” says Pang.

Chinese companies hopeful for an offshore listing are now playing a waiting game: They’re watching closely for more details from government regulators on how exactly they will carry out their new supervision.

In a bid for greater control and “common prosperity”—Chinese President Xi Jinping’s new initiative to combat social inequality, Beijing will maintain its newfound regulatory zeal, Pang says, and investors should be “reminded that the whole landscape for Chinese equities, offerings and regulatory framework could still undergo dramatic change.”