Review and Outlook for Chinese Mainland and Hong Kong IPO markets in the first three quarters of 2021

By 30 September 2021, Shanghai Stock Exchange is expected to have claimed 3rd place in the ranking of global stock exchanges by IPO proceeds, followed by Hong Kong Stock Exchange in 4th place and Shenzhen Stock Exchange in 5th. Nasdaq and New York Stock Exchange are set to have taken a substantial lead in 1st and 2nd place, with many more larger deals.

IPO activity in the Chinese Mainland and Hong Kong, particularly the latter, have been hit by heightened scrutiny and restructuring efforts in certain sectors of China's economy, including new economy companies that handle a large amount of data, education, and real estate. Many Chinese companies now consider Hong Kong their top choice of overseas listing destination.

The Chinese new listing market performed steadily in Q3 2021 and outperformed the same period of 2020. As a result of various reforms and regulators' effort to maintain a healthy capital market, there were more IPOs across all markets except the Main Board in Shenzhen, and growth in proceeds except for the SSE STAR Market, in Q3 2021. By industry, the proportion of manufacturing sector IPOs increased as well.

With continuous growth in the number of new listings and IPO funds on the SSE STAR Market and ChiNext, the Capital Market Services Group predicts that most IPOs in 2021 will have come from these markets. The SSE STAR Market is forecast to have had about 160-190 IPOs raising around RMB170 billion-RMB190 billion; while 190-220 companies are expected to have gone public on ChiNext, raising RMB110 billion-RMB130 billion. The main boards in Shanghai and Shenzhen are likely to have seen about 130-150 new listings raising RMB190-RMB210 billion by the end of the year. Small and medium-sized manufacturing and technology businesses will continue to drive IPO volume.

At the same time, the establishment of a new stock exchange in Beijing as part of the deepening of Mainland capital market reform should drive sentiment and confidence among younger innovative Chinese companies to gain access to the capital market.

Deloitte is delighted to see weighted voting rights (WVR) structures become so well received in Hong Kong by investors in such a short period of time since the WVR regime was introduced, with deal volume and value having risen from last year's level. This demonstrates the advantages of Hong Kong's ecosystem for technology and innovative companies and connectivity with the Mainland in capital markets and regulation.

The Deloitte China Capital Market Services Group predicts that so long as there are no substantial changes to regulatory measures, the Hong Kong IPO market is well set to meet its forecast of about 110-120 IPOs raising nearly HKD400 billion by the end of December 2021, thanks to a long, and strong, pipeline of nearly 200 IPO applicants as of end-September, including primary dual listings and listings from new economy businesses.

Chinese companies faced regulatory hurdles to going public in the US in Q3 2021, leading to no new listings in August or September 2021. However, due to several mega listings from the consumer and technology sectors in 1H 2021, there were more IPOs and more funds raised by Chinese companies in the US in Q3 2021 than in Q3 2020.