Chinese IT Companies Face Funding Drought Due to 'Red Regulation'... India Says "Thanks to That, Thank You"

Tencent and Alibaba Stock Slump... Fundraising Scale Drops to 7-Year Low
Global Investment Flows to India... Sensex Index Hits Record Highs

Alibaba Stock Price Trend Since the Beginning of the Year [Image Source= Yahoo Finance]

[Asia Economy Reporter Park Byung-hee] Due to the Chinese government's information technology (IT) industry regulations, known as the 'Red Regulations,' the scale of fundraising by Chinese IT companies is expected to decline for the first time in seven years this year. The Chinese government's regulations are drying up the funding sources for domestic companies. Global investment funds that have exited China are flowing into India.

According to financial information firm Dealogic, major foreign media reported on the 15th (local time) that the amount of funds raised by Chinese IT companies through initial public offerings (IPOs) on the Chinese mainland stock market this year is about $14 billion (approximately 16.56 trillion KRW). This is about $2.3 billion less than the total amount raised last year. If the current trend continues, the amount raised is likely to decrease slightly compared to last year.

The decline in stock prices of major Chinese big tech companies such as Tencent and Alibaba due to government regulations has had a significant impact. This year, Alibaba's stock price fell 28.4% on the New York Stock Exchange and 30.4% on the Hong Kong Stock Exchange. Tencent's stock price dropped 13.1% on the Hong Kong Stock Exchange this year.

The decline in big tech companies' stock prices also affected the Chinese mainland stock market. While most major countries' stock markets, including the US (24.7%), UK (13.8%), Germany (17.8%), and Japan (8.4%), have recorded double-digit growth rates this year amid expectations of economic recovery from COVID-19, the Shanghai Composite Index's growth rate this year is only 1.73%.

Trend of the Indian Sensex Index Since the Beginning of the Year [Image Source= Yahoo Finance]

As the Chinese stock market underperforms, global investment funds are flowing into India. According to Dealogic, IT companies in the Indian stock market raised $2.6 billion through IPOs this year. This is a staggering 550% increase compared to last year's total fundraising amount, already setting a record high. Moreover, the electronic payment company Paytm is scheduled to go public this week. With Paytm's offering size reaching $2.5 billion, the total fundraising scale for Indian IT companies this year is expected to nearly double.

Wong Kok Hoi, founder of APS Asset Management, said, "Global investors have begun to recognize that Chinese big tech companies will find it difficult to maintain their past profits." He added, "Major institutional investors such as private equity funds have mandatory investment quotas in the Asian region, and as the Chinese market falls into recession, India is emerging as an alternative."

Bhabishi Agrawal, CEO of Indian ride-sharing company Ola, said, "Indian entrepreneurs should seize the opportunity created by the turmoil in the Chinese market to attract global funds."

Chinese AI startup Megvii submitted an IPO application in March this year but has yet to go public amid government regulations and a sluggish stock market. Analysts warn that if the IPO fails while the company has not yet secured a clear profit structure, the very survival of the company could be at risk.

On the other hand, the Indian government has changed regulations to allow companies recording losses to conduct IPOs, encouraging startups to go public. Indian food delivery company Zomato went public in July under the government's IPO regulation changes, overcoming a cash depletion crisis. Currently, Zomato's stock price has doubled from the offering price, and its market capitalization reaches $12 billion.

Unlike the Shanghai Composite Index, the Indian Sensex Index is on a record-breaking streak this year. It surpassed the 50,000 mark for the first time at the beginning of the year and broke through the 60,000 mark in September. The growth rate this year is 27.2%. The successive listings of large IT companies are revitalizing the stock market. Goldman Sachs expects the scale of new IPOs on the Indian stock market to reach about $400 billion over the next 2 to 3 years.

This content was produced with the assistance of AI translation services.