China's recently announced pilot program for innovative tech start-ups to get listed on the domestic equity market and foreign-listed tech giants to float China depositary receipts (CDRs) has sparked debate among Chinese investors, with some enthusiastically waiting for potential investment opportunities, while others expressed skepticism.
The pilot program, announced Friday, is intended to attract companies in high-tech or strategic emerging industries - including in the internet, big data and artificial intelligence arenas - and is in line with China's broader drive to both become a global tech leader and establish a world-class financial system.
The announcement from the China Securities Regulatory Commission (CSRC) officially paved the way for fast-tracking domestic listings of innovative companies, also known as "unicorn" firms, as well as the floating of foreign-listed Chinese tech giants, following weeks of speculation since the two sessions, China's top legislative and advisory meetings, in early March.
According to the announcement, foreign-listed companies with a market cap of at least 200 billion yuan ($31.9 billion) and private companies with a value of at least 20 billion yuan and that posted revenue of 3 billion yuan in the past year can participate in the pilot program. Other companies that have fast-growing revenues, world-leading technologies and a competitive edge in strategic areas can also take part.
While the CSRC did not disclose the number of companies to be included in the pilot program, some media reported that eight companies are eligible, including some of the biggest names in internet and e-commerce. These include the US-listed Baidu Inc and Alibaba Group Holding, the Hong Kong-listed Tencent Holdings, as well as the US-listed JD.com Inc, together known as BATJ.
Returning home
So far none of these companies have officially confirmed a return to the domestic A-share market. But analysts believe that most companies would oblige due to the policy support and massive capital market.
"This is their home market where investors know them well and they would put a lot of faith in them," Li Daxiao, an analyst at Shenzhen-based Yingda Securities, told the Global Times on Monday. "Listing in their home market would give them higher valuations, better brand awareness and sales."
Investors are split over the potential opportunities the return of these companies could bring.
"I think these are high-quality stocks that I can invest in for the long term," one Beijing-based stock investor, who asked to be named only as Wang, told the Global Times on Monday. "We really have a shortage of such options."
Liu Xuezhi, a senior analyst at the Bank of Communications, noted that the CDRs of these Chinese firms would offer a better investment channel not only in their own shares, but in the A-share market because it would boost investors' confidence in the market.
"We faced capital outflow pressures in the last couple of years because of limited investment opportunities in the domestic market, so bringing more high-quality stocks onto the stock market would certainly help ease that pressure," Liu told the Global Times on Monday.
However, some investors are less than enthusiastic about the returning of BATJ, citing concerns of possible overvaluation and potential market volatility.
"BATJ has already passed the fast-growth phase in the US and the huge difference [in the price/earnings (PE) ratio] would attract these companies back home to get cash. Chinese investors are the ones who would take the hit," an internet user named Lilian Yu wrote in a post on an online forum on domestic question-and-answer site zhihu.com.
On Thursday, the PE ratio for the NASDAQ 100 and S&P 500 were above 24, while the PE ratio in the Shanghai Stock Exchange is about 18. Stocks with high PE ratios tend to be overpriced.
The return of BATJ, Li said, "could have a negative impact on some tech stocks currently listed in China by attracting more money flows. We have to make sure these stocks will not be overpriced."
"But in the long run, this is definitely a positive step toward China's goal of reforming the domestic financial market and becoming a tech power," he noted.
