This article was originally writen by Tao Duanfang, Well-known commentators and scholars in Canada and translated by after it was licensed. Copyright belongs to the original author and it is forbidden to reprint without permission.

Author: Tao Duanfang

Alibaba’s financial services company, Ant Group, plans to list in both Hong Kong and Shanghai as early as October, Bloomberg first reported exclusively citing sources. The news was later confirmed by the official website of the China Securities Regulatory Commission.

According to all sources, if optimistically speculated, the IPO financing target of Ant Group will be as high as about 207 billion yuan, or about $30 billion. If this goal is achieved, it will become the largest IPO in the world so far. Some people in the industry have estimated the total valuation of Ant Group after listing at at least US $225 billion. If so, the total market capitalization of Ant Group will be much higher than that of Goldman Sachs and Morgan Stanley combined, and slightly less than VISA, to become one of the largest financial stocks in the world by market capitalization.

After carefully packaged, Chinese enterprises have been listed overseas outside the “Greater China region”, especially on NASDAQ in the United States, which has become popular for a time and is regarded as one of the most important signs of “in-depth internationalization” of Chinese enterprises. Alibaba, the parent company of Ant Group, listed in the United States on September 19, 2014, set a record for the total amount of a single IPO raised in the US securities market at that time. “China-listed stocks” are in the limelight in the United States for a while.

However, since the successful attack on the Chinese stock “Oriental Paper” by short-selling Muddy Waters in 2010, Chinese stocks have suffered repeated setbacks and frequent scandals in the US securities market, not to mention that in 2020, Luckin Coffee was exposed for financial fraud, Iqiyi was also accused of “2019 revenue was seriously exaggerated” and was investigated by the Securities and Exchange Commission (SEC).

At the same time, the US government’s policy on US-listed stocks is also tightening: in early August, Reuters said US Treasury Secretary Steven Mnuchin said that “companies from China and other countries that do not meet accounting standards” will be forced to delist from the US securities market by the end of 2021. On its website, the US Treasury Department released the report of the President’s Financial Market Working Group on protecting US investors against significant risks of Chinese companies, suggesting that the jurisdictions of the US Public Company Accounting Oversight Board (PCAOB), including China, should “raise the threshold for listing, strengthen information disclosure requirements, and strengthen investment risk alerts.”

This means that if the situation is not reversed in a short period of time, not only will life become more and more difficult for US-listed Chinese stocks that have already been listed on the US securities market, but also companies that “list in the United States after packaging” as they did a few years ago will also face a higher and higher threshold, and the income-to-cost ratio will become less and less cost-effective. For listed companies that aim to raise capital rather than speculate in stocks, the latter is clearly more deadly.

In response, some current and potential listed companies try to “resist”, such as insisting that their “financial statements can stand the test” (Iqiyi still firmly refutes the charges against them), or combined with the current US government’s crackdown on Chinese high-tech companies, trying to attribute the “unfair treatment” suffered by all Chinese stocks in the US market to “systematic discrimination and persecution”, which seems to be aimed at making use of the environment of public opinion, to build a “United front of Chinese stocks” and strive to improve the overall environment of Chinese stocks in the United States and overseas financing markets, its essence is still based on passive defense. Other companies change tack, adopted flexible thinking, and choose to return to the “Greater China Circle”. In this way, they can avoid the high cost, high risk and high unpredictability of financing and refinancing in overseas markets. They can also take advantage of the general dissatisfaction with the “US crackdown” in China to achieve a “double harvest” in financing and public relations.

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Earlier, Hong Kong media quoted public data in China as saying that from January to July this year, the overall financing scale of the A-share new share market had reached nearly 290 billion yuan, surpassing the total amount of 282 billion yuan last year, while the IPO of the H-share market also flourished again after a period of silence, and only recently, a number of mainland Chinese companies, such as Happy Interactive and Nongfu Mountain Spring, were put on the agenda for initial public offerings in Hong Kong.

On the other hand, the significance of Ant Group is even more remarkable: first, it chose to IPO in the “Greater China Circle” after the parent company succeeded in IPO in the United States six years ago; secondly, it adopted the so-called “ideal financing plan for Chinese companies in the post-globalization era”, that is, to issue new shares in mainland China (Shanghai) and Hong Kong at the same time. Third, its “appetite” and volume is so huge that if the “small goal” is achieved, the total market capitalization of the Ant Group is almost equivalent to the total amount of new shares listed in A-shares in two quarters.

The reason why the “Shanghai + Hong Kong” mode has been vigorously promoted by many people in the circle is that it can avoid the high risk and high threshold of the US market, and it can also take into account the “strong protection” of the Chinese mainland market and the internationalization of the Hong Kong market. It can also take into account both Chinese and foreign capital, and it can also split the IPO, which originally appears to be too high to any single market, into two, making it easy for the market to bear and digest.

For companies such as Ant Group, which have a good credit record and a good public relations image, “Shanghai + Hong Kong” is obviously a good choice at present, which helps to avoid a series of unpredictable risks in the current North American financing market and meet the needs of financing and business development of the company. In view of the present situation, it seems more advantageous and necessary for some growing high-tech companies to adopt the “Shanghai + Hong Kong” model than the Ant Group, which is essentially a “service enterprise”.

However, from the huge size of Ant Group, we can see that almost all the companies that adopt “Shanghai + Hong Kong” at the present stage are giant enterprises with a scale of hundreds of billions of yuan in IPO. Even if it is split, it will have a great impact on the stock markets of mainland China and Hong Kong, especially the mainland stock market, which is still subject to insufficient restrictions on the internationalization of RMB. After the news of Ant Group “Shanghai + Hong Kong” came out, Hong Kong’s Hang Seng stock index rose 2.31%, while the Shanghai Composite Index and Shenzhen Composite Index rose only 0.2% and 0.65% respectively. We can find subtle differences-mainland investors are worried that large-cap stocks will attract too much capital, causing the stock index to repeat the mistakes of PetroChina, Institutions will take a wait-and-see attitude to changes in the opinions of mainland regulators.

It must be pointed out that the US government’s crackdown on Chinese high-tech stocks, the differential treatment of Chinese stocks by the US Securities Regulatory Commission, and the “shorting” of some Chinese stocks by short-sellers in the market should be treated differently. It is an objective fact that the US government restricts Chinese high-tech stocks, including using the norms of the Securities Regulatory Commission to force Chinese high-tech companies to be “transparent.” However, a series of measures taken by the CSRC on Chinese stocks, it is mainly aimed at the fact that a large number of Chinese companies do break the rules, while short selling is more often done for a reason, and they specifically look for obvious flaws in listed companies to attack.

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Take the most famous short seller, Muddy Waters and its founder Carson Block as an example, from 2010 to early 2020, it shorted a total of 35 listed companies, including 18 Chinese stocks, mainly looking for flaws in three aspects: corporate fundamentals, commercial fraud, and accounting fraud. Although it is inevitable to miss, it is also often successful. According to statistics, as many as nine Chinese stocks were forced to delist by Muddy Waters. Rino International, Luckin Coffee and others finally chose to admit fraud and violations in the face of a lot of evidences.

To put it simply, the problem of this kind of non-high-tech Chinese stocks targeted by short sellers is not the “China factor” deliberately emphasized by some of them, but real violations and fraud. In a sense, it is such misdeeds that have prompted more “short” to gather around US-listed stocks, prompting the US Securities Regulatory Commission to consider raising its IPO threshold.

Except for a few industries and enterprises that have a bearing on the national economy and people’s livelihood, the vast majority of ordinary industries and enterprises should not and must not completely give up IPO in overseas markets. After all, under the reality that the full convertibility of RMB is temporarily difficult to achieve and foreign exchange in and out of China is beset with difficulties, financing in overseas markets is a major way to attract foreign investment. Although the Hong Kong market can play a similar role, it is well known that financing in overseas markets is a major way to attract foreign investment. The problems in Hong Kong’s financial markets need not be covered up.

The “Shanghai + Hong Kong” mode is suitable for some Chinese companies, especially super-large companies, but it cannot and does not need to be a substitute for overseas listing: large companies can still consider overseas listing on the premise of fully considering risk control and financial regulations (of course, the listing destination can be carefully chosen). For small companies, “Shanghai + Hong Kong” is too “luxury”, only “Shanghai” or “Hong Kong”, perhaps more cost-effective.