Amid US-China Tensions... Global Banks Struggling in China's IPO Market

Dealogic Analysis
Foreign Banks' IPO Participation Rate at 1.2% This Year

This year, the participation rate of foreign banks in the initial public offering (IPO) market on mainland China has fallen to its lowest level in over a decade. Experts point out that the closed nature of China’s financial system, coupled with escalating US-China tensions, has sharply curtailed the entry of foreign banks into the mainland Chinese market.

[Image source=Yonhap News]

According to financial information firm Dealogic on the 11th (local time), the total fundraising amount in the mainland China IPO market this year reached $26 billion, of which transactions led by foreign banks as underwriters accounted for only 1.2%, or $297 million.

This is the lowest level since Dealogic began compiling statistics in 2009. While foreign banks’ participation rate in the IPO market was as high as 40.8% in 2009, it declined to 19.3% in 2019, 5.4% in 2021, and has now dropped to the 1% range this year. So far this year, only two foreign banks?Credit Suisse (CS) and Deutsche Bank?have acted as underwriters for 109 mainland Chinese company listings. No US banks have participated as underwriters.

The strong competitiveness of Chinese financial firms, which have acquired financial know-how through joint ventures with foreign financial institutions, has had a significant impact. Additionally, COVID-19 lockdowns have made communication between overseas headquarters and Chinese branches difficult. Fundamentally, the worsening US-China relationship is analyzed as narrowing the space for foreign companies operating in mainland China.

Fraser Howie, a Chinese financial expert, said, "This is the environment created by Chinese President Xi Jinping," adding, "Since COVID-19, the world has been divided into a Cold War between the US and China." He continued, "There are no regulations explicitly banning foreign banks’ participation or mentioning clear risks. However, for many companies pursuing listings, it may be much easier to work with local underwriters than with foreign banks."

The difficulty of conducting strict due diligence on Chinese companies is also an obstacle. It is often challenging to perform due diligence that meets the internal standards of foreign banks, leading to hesitation in underwriting IPOs for Chinese companies. An executive in the Asia investment banking division of a global bank explained, "We operate according to the standards we must meet for US listings. We want to conduct independent due diligence on Chinese companies, but we cannot be sure if independent due diligence is possible as with Western banks."

Another executive from a global bank’s Asia region said, "Global banks have branches in China, but very few are involved in local transactions," emphasizing, "We have to do something. Large banks must either participate in mainland Chinese company transactions or cease operations in China and reallocate resources elsewhere."

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