4 Reasons Chinese Companies IPO in America
Why do so many good Chinese companies go public in foreign markets rather than let domestic investors share in the profits of growth? Chinese investors often complain about why would “good companies”, like Tencent (0700.HK), Baidu (NASDAQ: BIDU) and Sina (NASDAQ: SINA), choose to list in the US and Hong Kong instead of on the Chinese A-shares market. There are four main reasons:
1. If a ‘Chinese’ company takes foreign investment using a VIE structure, it can only list abroad 2. Many companies don’t meet the strict financial standards for a Chinese listing 3. China’s listing process takes a long period of time and not very transparent, a torturous examination compared with America’s speedy registration 4. China’s regulatory agencies perpetually overregulate, rather than letting the market decide 1) If a ‘Chinese’ company takes foreign investment using a VIE structure, it can only list abroad The core reason is simple. These companies aren’t at all eligible to listed on the Chinese A-Shares Market, which restrict the overseas-funded enterprises severely. To receive foreign investment, a great number of Chinese companies set up a corporate structure called the VIE or Sina structure, because some industries such as internet info & services and financial services are restricted or even prohibited in foreign-funded investment. This structure is especially common for technology companies that raise financing early and often, frequently from foreign investors. State-owned enterprises aside, most ‘Chinese’ companies in the US are not legally Chinese at all. They’re Cayman Islands, British Virgin Islands, etc. companies that control Chinese entities. Chinese regulators have raised the idea of allowing foreign companies to list on the A-Shares Market, but at present that’s still speculative. A worry for foreign investors is that the entire VIE structure, which largely serves to circumvent Chinese laws barring...
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