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Tuesday, December 5, 2023

China’s Tech Companies Set to Flourish in Domestic Capital Markets

BusinessTechnologyChina's Tech Companies Set to Flourish in Domestic Capital Markets

A recent report by global consultancy PwC suggests that the Chinese mainland’s capital market will receive a boost to support innovative enterprises with key and core technologies. This will be fuelled by several policies aimed at stimulating economic growth.

The report highlights that the registration-based IPO system, adopted by the tech-focused STAR Market in 2019, will improve issuance efficiency and listing predictability. Walter Zhang, assurance markets leader for PwC North China, noted that the performance of Chinese mainland technology, media and telecommunications (TMT) companies in the capital market picked up in the second half of 2022, driven by the STAR Market and the Shenzhen bourse’s ChiNext board.

According to the report, the Chinese domestic capital market remained the main listing option for Chinese mainland TMT enterprises, with 31% and 28% of them choosing to be listed on the STAR Market and ChiNext market, respectively, in the second half of last year. A total of 39 Chinese mainland TMT enterprises chose to list on the STAR Market and raised about 74.1 billion yuan, accounting for 56% of total financing, while there were 35 TMT industry IPOs on ChiNext that recorded financing of almost 40.2 billion yuan, making up about 30% of total financing.

In addition, 17 Chinese mainland TMT enterprises chose to list on the Beijing Stock Exchange, which received about 3.2 billion yuan, occupying 2% of total financing. Additionally, 27 Chinese mainland TMT enterprises, or 22% of the total number of IPO-bound enterprises, opted to list in Hong Kong and overseas, netting 11.1 billion yuan, or 8% of the total proceeds.

The number of IPOs by Chinese mainland TMT enterprises significantly increased, from 68 in the first half of 2022 to 124 in the second half, the report said. The total amount of financing for the 124 listings reached about 133.5 billion yuan ($19.5 billion).

Another notable point in the report was that the risks facing US-listed Chinese mainland companies of forced delisting have been temporarily mitigated as China-US auditing supervision cooperation yielded good results, which will also promote investors to regain confidence in these companies.

Looking ahead, the report estimates that listings by Chinese mainland innovative TMT companies in Hong Kong are expected to remain active in 2023. In October, the Hong Kong stock exchange issued a consultation paper on the listing system for special technology companies, which indicated that special technology companies that are still in the stage of initial commercialization or have yet to complete commercialization will also be allowed to apply to be listed on the bourse.

Wilson Chow, PwC global TMT industry leader, said the move will benefit companies engaged in information technology, advanced hardware, advanced materials, new energy, energy conservation and environmental protection industries, which will inject new vitality into Hong Kong’s capital market.

In conclusion, the report demonstrates a positive outlook for the Chinese mainland’s capital market, especially for TMT enterprises. With the registration-based IPO system in place, it is expected to provide a more stable financing environment for enterprises and better support innovative tech companies. Investors will have renewed confidence in US-listed Chinese mainland companies as auditing supervision cooperation continues. Finally, the expansion of the listing system for special technology companies in Hong Kong is another positive step towards a more vibrant and dynamic capital market.

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