China grabs lots of headlines these days. Naturally, so do its IPOs on US shores. Renren’s public offering was a hot topic, not only for being one of the first social media companies to go public, but also for being the latest in a string of high-profile companies coming from China (Youku, Baidu, Sina etc.). Seems like a potential gold mine for investors. After all, if China’s growing so much, shouldn’t this year’s Chinese IPOs on US soil see equally amazing growth numbers?
The amount of red should be a clear answer. We’ve seen 12 IPOs from China this year. Only two have grown from their offer price. NetQin Mobile has the dubious title of second-worst performing IPO this year. China Century Dragon Media had its trading halted a month after going public and is already suspended on the exchange.
One might point to greater trends in the IPO market as a defense, but the possible explanations don’t hold. The average IPO has grown by more than six percent. The technology industry, while weak, still sees companies like LinkedIn and Yandex perform way above average. And China itself is still booming, so what’s the story with most of these 12 companies?
In an interview with CNBC, Hong Kong Exchanges and Clearing CEO Charles Li proposes a stunning answer.
“I do understand there are quite a few Chinese companies that are into a lot of problems over here [in the U.S.], and I was looking at them and I don’t really know how they ended up here—because none of those companies, or the majority of them, would not have seen the light of day in Hong Kong through our listing committee processes.”
When asked if these companies would have passed Hong Kong listing requisites:
“Absolutely not. Because of their profit track record and their management presence record—they wouldn’t even be considered.”
If this trend continues this year, it may not be difficult to see why.
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