China Halts US IPOs of Domestic Small Businesses Over "Stock Manipulation and Image Damage Concerns"

Experts: "More Losses Than Gains in Participating in the U.S. Capital Market"

Amid escalating tensions between the United States and China, Chinese authorities have put a brake on the listing of small Chinese companies on the U.S. stock market.

On the 27th (local time), the UK Financial Times (FT) reported, citing sources related to the China Securities Regulatory Commission (CSRC), that the CSRC plans to restrict the listing of Chinese companies with small market capitalizations and weak fundamentals on the New York Stock Exchange due to concerns that these stocks could be targets of price manipulation.

Sources said the CSRC is skeptical about whether small Chinese companies really need to raise funds in the U.S. and plans to "tightly control" IPOs of small companies in the U.S. this year.

This regulatory tightening comes as more Chinese companies turn to the U.S. stock market amid increased domestic listing controls in China. According to disclosure data, 61 Chinese companies were listed on the U.S. stock market last year, a sharp increase compared to 37 in 2023. In contrast, the number of IPOs on the Chinese stock market decreased by more than two-thirds last year.

However, the stock prices of Chinese companies listed on the U.S. stock market, especially small-cap stocks, have experienced sharp fluctuations, raising concerns about market manipulation. As a result, the approval rate for U.S. IPOs of Chinese companies by Chinese authorities has noticeably declined, reportedly dropping to about half in the second half of last year compared to the first half.

Experts interpret this crackdown by Chinese authorities as a move to reduce financial ties with the U.S. amid rising geopolitical tensions between the two countries. Andrew Collier, a researcher at Harvard University's Kennedy School of Government, said, "China does not want to participate more in the U.S. capital markets."

According to a report released last month by Hindenburg Research, a U.S. short-selling investment firm, 128 Chinese companies listed on the New York Stock Exchange since 2022 have shown price volatility that cannot be explained by their fundamentals immediately after listing. From China's perspective, there is little to gain from listing its companies on the U.S. stock market, while the speculative concerns caused by price volatility could lead to a loss of credibility and other negative consequences.