VSTHE ECONOMY OF HINA planners want more home-made semiconductors, but they’re not happy with producing more chips just at home. They want to bring the entire supply chain, from raw materials and chippers to labor and capital, ashore. Tens of thousands of companies have established microchip businesses in the past year. Now the state is rushing to make sure these cash-hungry companies can raise capital from their homes as well.

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On September 2, Xi Jinping, president of China, announced that a new exchange would be launched in Beijing, joining existing markets in Shanghai and Shenzhen. It is hoped that the exchange, a redesign of an over-the-counter exchange called the New Third Board, will channel capital from professional investors to fast-growing small and medium-sized businesses.

This is not the first time Xi has supported a new exchange for innovative companies: the one in Shanghai STAR the market opened in 2019, relaxed advertising rules that help speed up fundraising for small businesses. National registrations appear to be flourishing. Shanghai will host two of the world’s largest initial public offerings (Initial Public Offerings) of the year, those of China Telecom, a state-owned communications company, and Syngenta, a state-owned agrochemical giant. Funds raised through such offers in the city are expected to reach their highest level in a decade this year, according to Bloomberg.

The focus on domestic fundraising fits neatly into China’s ‘dual circulation’ strategy, the cornerstone of the country’s latest five-year plan, which aims to strengthen domestic markets and reduce reliance on it. foreign markets, often for reasons of national security. It also compensates for the environmental degradation of quotations abroad. New national regulations make it more difficult for Chinese companies to list abroad: Internet companies with more than one million users, for example, must now seek authorization from the cyberspace regulator. In America, the securities watchdog stopped the Chinese Initial Public Offerings following several disastrous announcements. Congress plans to force many Chinese groups to remove themselves from the list if they do not share certain audit documents, ones that the Chinese state forbids them from revealing.

At first glance, the roles of offshore and onshore Initial Public Offerings appear to have reversed. a Initial Public Offering Hong Kong or New York was once considered further out of Beijing’s reach and less susceptible to political surprises. However, the latest political and geopolitical turmoil has rocked overseas listings while making China-traded securities “a way to counter the geopolitical risks arising from we sanctions, ”say analysts from Natixis, a bank.

Neither Hong Kong nor New York can offer such a defense. The Hang Seng Tech Index and the Nasdaq Golden Dragon Index, which both track some of China’s largest listed tech groups, fell 28% and 33% respectively between late June and late August, according to Natixis. On the other hand, the STAR The 50 index increased by 1.4% over the same period.

However, channeling capital at the snap of a finger might be more difficult than regulators realize. Many technology groups raise funds privately through offshore structures not recognized by Chinese regulators. Part of the reason why Chinese tech companies are listed overseas in the first place is because the foreign investments they have made have been paid for through an onshore system. Initial Public Offering a regulatory minefield.

Xi could start any new exchanges he wants, but he has overlooked deeper reforms of their governance. The STAR market uses a ‘registration system’ to Initial Public Offerings where, in theory, companies only need to meet a number of clear requirements to go public. In practice, however, the China Securities Regulatory Commission (CSRC) retains control over who becomes public and when. Several registrations were suspended this year. The CSRC has an “official mindset” to maintain order in the markets and avoid unwanted social disruption, says a head of a global investment group. Regulators will be reluctant to shed this mindset, whether they are in Shenzhen, Shanghai or Beijing.

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This article appeared in the Finance and Economics section of the print edition under the title “Comfort at Home”


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