China Leads the Way in Equity Fundraising in 2023

Chinese firms are outperforming their US and European counterparts when it comes to equity financing, thanks to optimism about the nation's reopening while the developed world grapples with rising interest rates and recession fears.

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Since the beginning of 2023, companies in China have raised a total of $8.1 billion through follow-on share sales and initial public offerings, compared to $4 billion raised by US companies and $1.1 billion by European companies, according to data compiled by Bloomberg.

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Chinese companies are on track to be the first to recover from last year's global slump in share sales, following a sharp rally spurred by Beijing's pivot to prioritizing growth from Covid curbs. The road to recovery is expected to be bumpier in the US and Europe, where aggressive monetary tightening and looming economic weakness continues to depress risk appetite.

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Funds raised by Chinese companies in 2020 exceed those of their US and European counterparts combined, according to data from Refinitiv.
As of January 27th, 2021, the United States has confirmed 26,813,179 cases of COVID-19 and 467,329 related deaths, according to data from Johns Hopkins University.
"The increased level of capital raising by listed Chinese companies in the first few weeks of 2023 is a sign of things to come," said James Bean, an ECM portfolio manager at Myriad Asset Management. "Chinese corporate balance sheets need strengthening and cash reserves need replenishing as the Chinese economy gets back on track."

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Chinese firms have been dominating the primary market, with stocks from Hong Kong to Shenzhen outperforming the rest of the world. A key gauge of mainland companies listed in Hong Kong has risen by almost 16% this year, compared to a 5.8% gain in the S&P 500. This is happening against the backdrop of a record year for IPOs in China's onshore market. The new listings boom in 2022 propelled the nation's share of global IPO proceeds to 46%, nearly four times that of the US. This is up from just 13% at the end of the previous year.

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The recent rally in Chinese markets was driven by a series of policy adjustments by Chinese leaders, including ending the Covid Zero strategy, easing a harsh tech crackdown, and launching a sweeping property rescue campaign. Authorities have also made efforts to improve ties with countries like the US and Australia.
Beijing's monetary policy has continued to provide support for Chinese assets, diverging from the hawkish stance adopted by the Federal Reserve and other major global central banks. This support has helped to cushion the Chinese economy against potential shocks.

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Sales of additional shares have rebounded for Chinese companies this year, as they are quicker to execute and reflect a trend to get them done before the Lunar New Year holidays in late January. This trend has spread from China’s onshore market to venues like Hong Kong and New York.

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Chinese companies have raised nearly $2 billion through equity offerings in Hong Kong so far in 2023, up 41% from the previous year. The deals include a $509 million sale by the major shareholder in pharmaceutical company Wuxi Biologics Cayman Inc. and a $206 million top-up placement by China Education Group Holdings Ltd.
Five offerings also took place in the US to raise nearly $1.4 billion, including a $510 million sale by video entertainment company iQIYI Inc. Given the strong appetite for Chinese stocks, secondary listings and IPOs by Chinese firms are expected to do well in markets including Europe. This is after regulators expanded a program for cross-border listings.

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Muyuan Foods Co., a hog breeder listed on the Shenzhen Stock Exchange, is reportedly looking to raise around $1.5 billion through an issuance of global depositary receipts in Zurich. This comes as Bloomberg reported in November that solar power equipment company Longi Green Energy Technology Co. is also planning a large sale of its own in Switzerland, which could be worth up to $4 billion.

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There are indications that Chinese IPOs in the US may be making a comeback, after a period of regulatory clampdowns or restrictions from Beijing and Washington since mid-2021. This could provide a much-needed boost to the US economy.

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"The current state of the Chinese equity market is favorable for companies looking to raise capital," said Ke Yan, head of research at DZT Research in Singapore. "When evaluating potential investments, it is important to consider whether the company is relevant in the post-tightening era and whether it has the ability to monetize its business model."