China’s biggest tech companies such as Tencent, Baidu, and Alibaba have sought a place on foreign exchanges for years. Currently, Tencent is listed on the Hong Kong stock exchange and can be traded on the NASDAQ through an ADR or American Depository Receipt. Baidu is NASDAQ: BIDU. Alibaba held its record $25 billion public float in New York in 2014 after Hong Kong, refused to accept its governance structure where a self-selecting group of senior managers control the majority of board appointments.
But during China’s Two Sessions earlier this month – the government meetings that determine its annual agenda – Beijing announced plans to turn the trend around. Analysts report that the move is equal parts wanting to share gains from their burgeoning native companies, and to have greater control over the sector.
During the sessions, Chinese Premier Li Keqiang said that the country would “support leading innovative companies in going public.” Then, the Shanghai Stock Exchange announced that it had paid a visit to each of the tech giants with customized options for Chinese listings.
Additionally, a special committee of the China Securities Regulatory Commission will push forward IPOs for the country’s unicorns, those privately held companies valued at US$1 billion or more.
So how exactly does China plan to brick its tech giants back home, while they enjoy prestige and lucrative returns abroad? A Chinese law has been proposed to create a dual-class share structure that would give more power to executives. Additionally, China may create a similar security to the ADR (American Depository Receipt), which allows domestic investors to buy equity on companies listed on exchanges abroad.
To give an idea of the equity domestic Chinese investors are missing out on at home, take a look at Alibaba’s valuation, which increased 90% last year alone.
International investors shouldn’t be way of the potential change, as Chinese investors are eager to grab equity in non-state backed companies. According to UBS, Chinese investors could inject up to US$59 billion into tech firms that list companies as CDRs.