[The Editors' Verdict] The Possibility of a 'Manhattan Exodus and Hong Kong Rush' for Chinese Companies

[Image source=Yonhap News]

[Jung Yooshin, Dean of the Graduate School of Technology Management at Sogang University and Chairman of the China Capital Market Research Association] Despite the recent worsening situation in Hong Kong, Ant Technology Group (formerly Ant Financial), China's largest unicorn company founded by Jack Ma, is reportedly planning a simultaneous listing on both the Hong Kong and Shanghai stock exchanges. This decision defies expectations that it would list in the United States.

The anticipated size of Ant Group's initial public offering (IPO) is around $30 billion (approximately 36 trillion KRW). Many believe it will surpass the record set last year by Saudi Arabia's state-owned oil company Aramco, which was the highest ever. Ant Group is not alone. In June, just prior to this, major online gaming company NetEase and the second-largest IT e-commerce company JD.com, both listed in the U.S., were listed in Hong Kong amid significant investor interest. This is so-called 'dual listing' in the U.S. and Hong Kong. The market refers to this as the 'return of IT giants.' These IT giants are very popular among investors, which in turn positively impacts the Hong Kong stock market.

Why are China's leading IT companies turning their focus to the Hong Kong stock market? Experts cite several reasons. First, it is due to the institutional improvements of the Hong Kong Stock Exchange, particularly the 'dual-class voting system,' which separates common shares from voting rights. This system grants more voting power to certain shares, serving as a means for management or major shareholders to defend corporate control, making it especially attractive to successful companies.

Second, the unfavorable view of Chinese companies in the U.S. is also a significant factor. The 'Holding Foreign Companies Accountable Act,' passed by the U.S. Senate on May 20, allows for the delisting of foreign companies that refuse inspection requests from U.S. authorities. The industry expects Chinese companies to be the primary targets, so Chinese firms listed only in New York face uncertainty and risk. Consequently, there is frequent talk of a 'Manhattan exodus and Hong Kong rush' by Chinese companies in the future.

Third, the influence of the Chinese government is also believed to play a role. In response to the U.S. countermeasures against China's Hong Kong National Security Law, such as revoking Hong Kong's 'special status' and signing the Hong Kong Autonomy Act, the Chinese government needs to enhance Hong Kong's attractiveness by any means. According to the Hong Kong Autonomy Act, not only individuals or organizations infringing on Hong Kong's autonomy but also financial institutions dealing with them are subject to sanctions. Being sanctioned could lead to severe business disruptions, such as suspension of transactions with U.S. banks. Foreign financial institutions are thus forced to consider whether to leave Hong Kong amid the conflicting pressures of China's Hong Kong National Security Law and the U.S. Hong Kong Autonomy Act. For example, HSBC reportedly faced potential 'dollar funding restrictions' from the U.S. government for supporting the Hong Kong National Security Law. This is why the Chinese government needs to prepare incentives like stock investment attractiveness.

So, how many companies are likely to pursue 'dual listings' in Hong Kong in the future? According to the U.S.-China Economic and Security Review Commission, an advisory body to the U.S. Congress, as of February last year, 156 Chinese companies were listed on the New York Stock Exchange (NYSE), Nasdaq, and NYSE American. Among them, 42 are IT and telecommunications companies, and more than 30 companies, including major search engine Baidu and e-commerce platform Pinduoduo, meet the criteria for 'dual listing' on the Hong Kong Stock Exchange. Li Xiaojia, CEO of the Hong Kong Stock Exchange, said that Baidu is considering a dual listing in Hong Kong, and this year is expected to be a landmark year for IPOs on the Hong Kong Stock Exchange. This seems to signify a rush of high-quality large enterprises returning from overseas listings. Currently, Hong Kong is connected to the Shanghai Stock Exchange via the Stock Connect (H-shares) and to the Shenzhen Stock Exchange via the Shenzhen-Hong Kong Stock Connect. As more leading IT giants return to the Hong Kong stock market, large-scale investment funds from mainland China are expected to flow in, driving stock price increases. It will be an important point to watch how much this will help the financial hub of Hong Kong, which is becoming unstable due to the conflict between the Hong Kong National Security Law and the Hong Kong Autonomy Act.

Professor Jeong Yushin