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88 tech startups drop IPOs in China in 2021 as headwinds mount

 


SHANGHAI – Under pressure from the ruling Communist Party at home and the US administration abroad, Chinese startups have started to rethink their disclosure plans in anticipation of new obstacles in the way.

The impact is particularly pronounced in the Shanghai Stock Exchange’s STAR marketplace, where 88 companies, including some of China’s most promising unicorns, have suspended or canceled initial public offerings scheduled in the first three and a half months of 2021.

The tech-focused board was founded in 2019 with strong support from Chinese President Xi Jinping and has since grown into a key destination for Chinese tech-focused companies. But even as the number of global IPOs hit a 25-year high in the January-March quarter, the STAR market has seen many more cancellations in recent months than in its entire first year and half.

The government has helped fast-growing companies secure financing to encourage innovation and strengthen China’s position in its tech rivalry with the United States, but it has suspended what would have been the largest public offering ever. by Ant Group in November as part of a crackdown on the nation’s largest tech companies, shifting the promotion of growth to strengthening the Communist Party’s grip on financial markets.

A unit of e-commerce company Alibaba Group Holding, Ant is one of the two companies that dominate the Chinese online payments market. Financial authorities said on Monday that Ant will now restructure as a financial holding company overseen by the People’s Bank of China, following their third meeting with company officials.

The China Securities Regulatory Commission announced new rules on new IPOs in late January, including possible surprise inspections of applicable companies. The change allows the government to specifically target businesses it deems problematic.

Authorities will take “vigorous” action against “sick” companies that try to break their way into an IPO, CSRC chairman Yi Huiman said in March.

And Beijing’s pressure tactics have worked.

Alibaba CEO Daniel Zhang said on Monday that the company will actively cooperate with regulatory oversight. Alibaba shares rose 6.5% in Hong Kong that day in hopes that the comment, combined with a record 18 billion yuan ($ 2.75 billion) fine on Saturday, the report said. end of its clash with regulators.

But increased government control could weigh on stock prices in the long run. Unicorns that pulled out of IPO plans in February and March included Yitu Technology, which develops facial recognition technology, and Hesai Technology, which makes sensors for self-driving cars. Each has an estimated valuation of around $ 2 billion.

Yitu officially explained that it takes longer to comply with stricter registration rules.

JD Technology, the financial technology arm of Alibaba’s rival JD.com, has also withdrawn its IPO application, the Shanghai Stock Exchange reported on April 2. JD Technology is involved in many areas like Ant Group, such as consumer lending, and aimed to raise 20 billion yuan in the STAR market.

US pressure on Chinese tech companies is also contributing to the cooling. Last week, the United States blacklisted seven Chinese supercomputing companies and research institutes. There is speculation the Biden administration could push Chinese tech startups to reshape their operations in the United States

These concerns weigh heavily on the STAR market as a whole. The STAR 50 index, which tracks many of the largest companies on the board, has fallen almost 30% from its recent high last summer, even as the MSCI ACWI index, which tracks shares across the world continued to rise.



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