Switzerland Turned into a Playground for Chinese Companies... A Distant IPO Journey

Chinese Companies Continue IPOs in Swiss Market
US Private Equity Also Slows Public Investment
Administrative Order Limiting Private Investment Imminent

Chinese companies are turning their eyes to Switzerland, avoiding the high listing review barriers in the United States and the United Kingdom. Investment by U.S. management-participation private equity funds (PEFs) in Chinese companies is also on the decline. As geopolitical tensions between the U.S. and China escalate, capital movement and investment between the two countries are rapidly contracting.

Chinese Companies Continue IPOs on Swiss Stock Exchange

[Image source=Reuters Yonhap News]

According to the Swiss Stock Exchange (SIX) on the 7th (local time), nine Chinese companies were listed on the Zurich stock market last year, raising $3.2 billion. This significantly exceeds the $470 million raised in New York during the same period. More than 20 Chinese companies are reportedly planning IPOs in European markets, including Switzerland, this year. For example, Zhejiang Hangke Technology, a lithium battery equipment manufacturer, was listed on the Swiss stock exchange for the first time this year, raising $172 million.

The main reason Europe has emerged as a new IPO market for Chinese companies is the intensifying U.S.-China conflict. As the U.S. began accounting supervision of Chinese companies, they gave up listing on U.S. stock markets and turned to Europe. Amid ongoing political and economic clashes between the U.S. and China, the U.S. Securities and Exchange Commission (SEC) demanded direct audits and submission of accounting audit reports from Chinese companies listed on U.S. exchanges. However, China strongly opposed this on national security grounds, leading to a stalemate. Eventually, Chinese companies were pushed to the brink of delisting from U.S. markets, prompting Chinese authorities to back down somewhat. Since then, more Chinese companies have started choosing Switzerland over the U.S. for IPOs.

Among European countries, the United Kingdom was also favored, but as the UK government began demanding separate accounting audit standards for Chinese companies similar to the U.S., Chinese companies are again shifting to Switzerland.

Since 2019, five Chinese companies have raised $6.5 billion through IPOs in the UK market. This year, coal chemical company Yongtai and IT company Lingyi iTech planned to list on the UK stock exchange. However, these companies have yet to make a decision. Previously, UK regulators announced they would not recognize Chinese accounting audit standards.

Another reason Chinese companies choose Europe is that listing on overseas markets rather than their domestic market allows them to circumvent capital controls imposed by their home authorities.

Some have raised concerns that the Swiss stock exchange could become a "playground" for Chinese companies. A European stock exchange expert said, "Switzerland is at great risk of becoming a Chinese market," adding, "If all the planned listings of Chinese companies materialize, the amount of capital raised will exceed the total IPO volume in Europe last year."

[Image source=Reuters Yonhap News]

U.S. Private Equity Investment in China Slows... Administrative Order to Restrict Private Investment Imminent

Movements of Chinese companies turning from the U.S. back to Europe are expected to accelerate further. As conflicts between the two countries intensify, the Biden administration is about to announce an administrative order restricting U.S. companies' investments in advanced technology sectors that could enhance China's military and governmental capabilities. This would be the first time the U.S. restricts private investment in China.

U.S. private equity funds have already been reducing their investment proportions in China. According to market research firm PitchBook data, in 2022, Chinese company acquisitions accounted for 0.3% of global investment deals involving U.S. private equity funds. This is a continuous decline from 3.5% in 2015 and 1.3% in 2018. The value of deals involving Chinese companies in which U.S. private equity participated also plummeted from $24.5 billion in 2015 to $12.1 billion in 2018 and $3.5 billion in 2022. The anti-China stance revealed by the Trump administration starting the 2018 trade war has been continued by the Biden administration, significantly dampening investment sentiment toward China.

[Image source=Reuters Yonhap News]

Proactive investors have taken measures to further reduce their investment proportions in China in preparation for the imminent U.S. administrative order. The private equity firm Carlyle Group has set new investment limits to reduce the proportion of Chinese investments when investing in Asian funds compared to before. KKR has decided to focus on financial services rather than advanced technologies such as semiconductors when investing in Chinese companies. Regarding this, H.K. Park, managing director of U.S. consulting firm Crumpton Global and a former Department of Defense official, explained, "Some investors have taken additional steps to sell problematic Chinese companies before the administrative order is announced."

Bloomberg reported, "As the Biden administration nears completion of an administrative order to curb investments in China's tech industry, bets on the world's second-largest economy are expected to slow further."

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