Goldman Sachs analysts hailed the plate of policy priorities, released in late 2013, as a “bold economic reform agenda” with a “pro-market stance” that would limit government intervention and restrict established state-owned enterprises. But in the years that followed, waves of instability in Chinese stocks and currency, the threat of financial turmoil from emerging tech moguls and fears that offshore listings could violate data security only helped to strengthen the case. policy-making that if the markets are to play a “decisive role”, then the role of the party must be even more decisive. “[China’s leaders] think they know better than the market and many of [their] The actions have done real damage to it and the economy, “said Weijian Shan, one of China’s most experienced and successful financiers, during a videotaped meeting with brokers during the Shanghai Covid lockdown. -19. Shan added that the Asia-focused private equity group PAG, which manages more than $ 50 billion, had diversified away from China. The unusually sharp criticism from Shan, a strong Beijing advocate, came at a critical time for the country’s capital markets. A regulatory downturn in China has cut about $ 2 trillion from the market value of listed tech groups over the past 12 months as Xi opposed the “erratic expansion of capital.” In place of the open markets it spoke of a decade ago, China’s capital-raising environment is increasingly shaped by Xi’s broader strategic priorities – one that focuses on technologies considered central to economic competition with the West, driven by the situation and colored by suspicion of outside influences. The change reflects how the influence of foreign investors is waning as Beijing pushes for efforts to shape Chinese equity markets into an assembly line that directs private funding to policy goals, with the ultimate goal of creating a new nation. champions in strategic areas. A worker locks a gate in a residential complex in Shanghai, where the lockdown is so severe that it has raised the prospect of a second recession in China since the beginning of the pandemic © Hector Retamal / AFP / Getty Images To this end, the state is expanding its presence more or less in the country’s IPO pipeline. Over the past decade, so-called government guidance funds have raised more than $ 900 billion to ensure adequate early funding flows to companies from well-to-do industries such as high-tech manufacturing, renewable energy and biotechnology. In addition, policymakers have pushed for faster listing reforms as soon as these companies are ready to go public. For Xi, financing China’s transformation into a global high-tech innovation hub is central to national defense. In a speech published last year in the country’s leading magazine on Communist Party theory, he warned that “only by capturing key technologies in our hands can we fundamentally guarantee national financial security, national defense security and other safeguards.” “Investors are making a comeback,” said Kiki Yang, co-head of Bain & Company’s private equity business in Asia-Pacific. Gone are the days of annoying start-ups burning out of foreign sponsor cash to escalate to an initial public offering in New York or Hong Kong. “As a fund, we need to think about the areas that can really benefit from a policy perspective,” he added. “Many of the biggest offers are [being] was done by the funds under the leadership of the government, at least for the last year or so “. That’s a long way from a decade ago, when China’s start-up scene was filled with cash from overseas private investors such as Sequoia and SoftBank, whose early support for companies like Alibaba and Tencent helped grow innovative applications and payment platforms that reformed the Chinese economy. Fraser Howie, an independent expert on Chinese finance, said the country’s leaders “do not consider platform and internet companies to be truly innovative.” “They want microchips, quantum computers, genetics, really tangible things as opposed to cyberspace.” Howie said US sanctions on Chinese semiconductor and telecommunications equipment makers and the backlash in Europe over Beijing’s refusal to condemn Russia for invading Ukraine have prompted the party-state to channel more money into areas it believes are vital to safeguarding China’s national security and economy. ascent. “Xi Jinping clearly dictates this,” Howie added. “The question is how successful he will be.”
Investors were left out in the cold
Xi’s first major IPO came in November 2020, when regulators broke Ant’s $ 37 billion record for the fast-growing fintech group owned by Alibaba billionaire Jack Ma. But the wider technology crackdown began severely nearly 12 months ago, shortly after the introduction of the Didi Chuxing app in New York, despite warnings from Chinese regulators about data security concerns. This has led to the shutdown of almost all offshore IPOs to allow regulators to finalize new overseas import rules for companies with large amounts of user data. At the same time, tensions erupted over Beijing’s refusal to give US regulators full access to control reports of Chinese companies trading on Wall Street, raising the specter of forced write-offs and questions about whether selling shares in New York would be worth it. trouble. “The US is proving very, very difficult,” said the head of the Asian Capital Markets Syndicate at a Wall Street investment bank. The man added that there was “no doubt” that more Chinese IPOs would go to Hong Kong as soon as Beijing allowed the resumption of offshore registrations, but different types of companies would dominate the flow of transactions. “These very technological, platforms, data-sensitive names are just hard to invest in,” the banker said. “The other side is, if you bring a company [to market] “It makes renewable energy in China, everyone knows it is a business model that the government will encourage.” No one knows when the offshore IPOs will return to full force. Figures from Dealogic show that 95 percent of the $ 35 billion in fundraising from Chinese companies this year has been concentrated in domestic markets, with state-owned investment banks such as CICC and Citic Securities dominating deals and selling new approval of regulatory authorities. As a result, most listings now go to either Shanghai or Shenzhen, and few expect that to change any time soon. “What you saw in the first quarter gives you a very good idea of what the rest of the year will be like,” said a veteran IPO lawyer on a Hong Kong-based international team. This would keep foreign investors largely excluded from Chinese IPOs, while leading Wall Street banks such as Goldman Sachs and Morgan Stanley would lose imports to Hong Kong and New York, which have delivered billions in annual commissions. dollars in recent years. Xi Jinping first intervened in a major public offering in 2020 when regulators dissolved Ant Ma’s $ 37 billion Jack Ma © Ng Han Guan / AP In addition to restricting access to global stock markets, the past 12 months have accelerated further changes to the pipeline, where regulatory action and government investment have had an impact on venture capitalists and private equity groups. scaling for a public subscription. “Everyone knows how difficult it is this year,” Yang told Bain. He estimated that the level of unused capital held by investors centered in Asia reached a record $ 650 billion in 2021, as trading in China was hit by investor concerns about geopolitical tensions with the US and stricter regulations. However, he added that while funding fell sharply in the second half of last year for some parts of technology that have historically been favored by private equity, others, such as semiconductors, have skyrocketed largely thanks to government-led funds.
“Tons of capital will be lost”
The scope and ambitions of government guidance funds have also increased significantly during Xi’s term. These public and private equity funds, set up by or for state-owned entities, have a dual mandate to advance Beijing’s policy goals and provide financial returns. As of early 2013, some 1,800 government guidance funds have raised more than Rmb6tn ($ 900 billion) to invest in strategic areas and have already received approval from regulators to double that amount, according to estimates. of the independent research team Zero2IPO. Data from investment data provider Preqin show that the share of private equity and venture capital raising in China, which is intended for public funds, has increased by about 2-3 percent before Xi came to power in more than a third in recent years. Bain estimated that about 40 percent of the more than $ 86 billion raised from foreign and domestic capital concentrated in China last year went to these state coffers. “The vast majority of funding for Chinese VCs comes from the government,” said William Bao Bean, general partner at global venture capital firm SOSV. He said that while “smart money in China has traditionally been a global asset”, investment has become much more difficult over the past four years as government controls have tightened. The resulting shift in funding has generated more IPOs from companies than what Beijing has described as “strategic emerging industries,” including manufacturers of electric vehicles, biotechnology, renewable energy, artificial intelligence, semiconductors and other high-quality equipment. . In 2020, such entries represented more than half of the value …
