Editor’s Note: Chen Jiahe is Chief Investment Officer at Novem Arcae Technologies. The article reflects the opinion of the author, and not necessarily the views of CGTN.
The Chinese authorities have announced their intention to modify the confidentiality rules on the offshore listings of Chinese companies. With this measure, the life of Chinese companies in foreign capital markets will become easier as they will face less regulation.
Encouraged by the news, Chinese companies listed on US capital markets, including NASDAQ, have continued their rally in recent days.
The Wind Financial Terminal, a local financial data provider, reports that the Wind China Capital 100 index rebounded from a low of 1,803 points on March 15 to 2,612 points on April 1. The 44.9% rally is mainly the result of a consolidated pledge by Chinese authorities that they will continue to support the listing of Chinese companies in global capital markets.
There are multiple reasons encouraging famous Chinese companies, including Baidu and NetEase, to register overseas.
First, listing in global financial markets, especially in America, can secure access to Silicon Valley, the most important place in the world for technology. Second, it also brings Chinese companies closer to their overseas business partners and builds trust between customers, suppliers and local financial supporters. Finally, many Chinese technology companies seek listings on international markets, such as NASDAQ, which do not require listed companies to be profitable at the time of IPOs.
The listing of Chinese companies in global capital markets benefits companies and their investors. One of the best examples of this kind of win-win business cooperation is with NetEase, a Chinese company that focuses on Internet computer games and online music.
NetEase is the second-largest computer game company in China, behind Hong Kong-listed Tencent. The Wind Financial Terminal reports that the share price of NetEase, which is listed on NASDAQ, rose from $12 in 2000 to $2,254 in 2022 after all adjustments were calculated. Investors who bought NetEase shares could realize a 200x return in just over 20 years.
With the listing of Chinese companies overseas, as well as the opening of Chinese capital markets, leading global investors such as SoftBank, Sequoia Capital and Himalaya Capital have seen good investment results with Chinese assets. .
Meanwhile, with the opening of Chinese capital markets through programs such as the Qualified Foreign Institutional Investor and Mainland and Hong Kong connections, more and more international investors are investing in China and realizing large profits.
China’s Growing and Developing Capital Markets
Chinese capital markets are now very large compared to 20 years ago. The four major stock markets – in Beijing, Shanghai, Shenzhen and Hong Kong – benefit from billions of dollars of trading value every day. However, even with their size, the Chinese economy still needs overseas markets. The listing of Chinese companies on foreign capital markets is not a loss but a gain for China.
The trajectory of global economic development since World War II has taught us that no single economy can grow quickly or in a healthy way. Global cooperation between economies and the specialization of countries through the use of their comparative advantages is vital for development. From China’s own experience, the Chinese economy has developed rapidly since the country’s economic reforms and opening up in 1978.
Over the past 44 years, international investors have contributed to the development of the Chinese economy. In the 1980s and 1990s, global investors built sophisticated factories in China. In the late 1990s and early 2000s, many Chinese Internet companies were listed on the NASDAQ stock exchange. The capital raised from these listings has supported the development of China’s internet industry. Investment funds created in the United States, especially those based in Silicon Valley, have contributed to the growth of many leading Chinese companies in sectors such as technology, consumer and health.
China has a population of 1.4 billion, which is about three times the population of North America or Western Europe, China realizes that its economy can achieve better development if cooperation rather that the conflict is maintained between China and the other world economies. The listing of Chinese companies in global capital markets can bring companies and investors from all over the world closer together. Through the exchange of business information and investment techniques and the flow of capital, economic development can be better stimulated for both China and its trading partners.
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