Postings | China Accounting Blog | Paul Gillis


Queue-jumping initiative

Reuters has an interesting report that says Chinese regulators plan to allow some of China’s largest tech firms to jump the queue to list in China. 

The largest Chinese tech companies have mostly listed in the United States. This was for several reasons. Initially Chinese markets were used mostly for state owned enterprises. That changed with the opening of the SME Board in Shenzhen and especially with the 2009 launch of ChiNext, China’s NASDAQ.  Listing offshore also provided an exit for foreign venture capital investors, who otherwise faced restrictions in investing and currency controls made it difficult to convert proceeds from exits.

Most listings went to the US where both NASDAQ and NYSE competed aggressively for the listings. Initially this was because of a perception that US markets had more liquidity and a better understanding of tech. As the Hong Kong and China markets matured and grew in size, the listings mostly continued to go to the US. A major reason was that the US allows control structures (like two classes of shares) that enable founders to stay in control of companies despite selling down most of the shares. Hong Kong and China do not permit control structures, and the Hong Kong Stock Exchange's unwillingness to change this rule cost them the Alibaba IPO. Nevertheless, a few tech companies, notably Tencent, have listed in Hong Kong (without control structures).

Updated statistics on VIE use

This is a guest post from Fredrik Ökvist, one of my former students who developed a consulting business focusing on overseas listed Chinese companies.  

Last year a couple of academic articles regarding VIEs quoted some statistics I’d produced on the topic way back in 2011. Given all that’s happened since then –de-listings due to fraud allegations, going private transactions, and numerous new IPOs – I thought it might just be time to provide an update to the outdated snapshot of VIE usage among US-listed Chinese companies I produced long ago. I also note that Professor Gillis was asked about the topic briefly in his recent senate hearing.

I did a bit more of a deep-dive into the nature of the VIE structures we see this time, and might come back with some more details in later posts, but for now I’ll stick largely to providing an update on the items dealt with in my old post.

First though, some basics:

1. I used a list of Chinese companies listed in the US from the NASDAQ website, this included names of both NASDAQ and NYSE listings, but I noticed it missed some names. I’ve tried to add in the ones that I’m aware of, but I cannot guarantee the list is complete. It doesn’t include any OTCBB names, nor any companies listed in HK (but neither did my earlier sample).

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