Home' Trinidad and Tobago Guardian : June 21st 2015 Contents One obvious reason for this is China s current stock
market frenzy; especially for Internet shares. A listing
in New York once meant higher valuations for Chinese
startups than were possible on moribund Chinese
exchanges. Western investors, used to Silicon Valley s
profitless but promising upstarts, were more under-
standing. An American listing was also regarded as
a stamp of quality.
But Americans have fallen out of love with Chinese
stocks. This is partly justified, thanks to a series of
scandals such as that of Longtop Financial, a Chinese
software firm whose former chief financial officer
was found guilty in a New York court of "being reck-
less in making untrue statements" about its finances.
However, even Chinese firms with no taint of scandal
have come under attack from American short sell-
ers.Higher valuations aside, there is another reason
Chinese firms are coming home: The government
has put out the welcome mat. In the past, regulations
required firms to be profitable for a few years before
they could be listed on local exchanges. That made
it impossible for Internet startups to list at home.
The process of preparing an initial public offering
used to involve getting multiple approvals, whereas
in other countries it is simply a matter of registering.
Changes to Chinese securities laws are underway
that will ease these and other burdens.
Another regulatory change that may be pushing
firms to come home involves legal loophole known
as "variable interest entities."
China forbids foreign shareholders in its Internet
companies. Yet nearly all of its biggest ones have lots
of foreign investors. They have achieved this by
inviting foreigners to put money into a VIE, based
in places like the Cayman Islands but sometimes
listed on an American exchange, to which the Chinese
company promises to pay certain fees and royalties.
The Chinese government plans to change its for-
eign-investment laws to shut down this dodge for
most firms (though those VIEs tightly controlled by
Chinese citizens, such as Alibaba s, should not be
In the long term it may well make sense for Chinese
companies whose main business is in their home
country to be listed on a domestic exchange, where
investors understand its market better than foreigners.
Now, with Chinese stock markets riding high, would
seem a good time to relist on them. But when China s
share bubble pops, as it will at some point, the return-
ing firms shares will suffer, along with those that
never left home in the first place.
@2015 The Economist Newspaper Ltd. Distrib-
uted by the New York Times Syndicate
Last year it seemed that a
Chinese invasion of
American stock markets
was underway. More than
a dozen firms from the
mainland floated shares
in New York, raising
US$30 billion in total.
Alibaba, an e-commerce firm, led the pack
with one of America s biggest initial public
offerings on record. However, as rapidly as
it rose, this red tide is now ebbing.
A growing number of Chinese firms are
now seeking to delist from American
exchanges, and to relist back home. Accord-
ing to Bloomberg LP, a data service, investors
in a dozen listed firms have received bids
this year totaling over US$10 billion to take
them private so as to relist them in China.
Among them were Sungy Mobile, a maker
of smartphone apps, and Shanda, which
designs online games. On June 17 Qihoo
360, a software firm, became the latest to
join the wave. Mindray, a medical-devices
company, and Wuxi Pharmatech, a med-
ical-research firm, are expected to follow.
JUNE 21 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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A red tide ebbs
Chinese firms listed on American
stock exchanges are starting to go home
In the long term it may
well make sense for
Chinese companies whose
main business is in their
home country to be listed
on a domestic exchange,
understand its market
better than foreigners.
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