Overseas Listing Of Mainland Chinese Companies

The advantage of a IPO is the ability to acquire the necessary funds easily, which is something to consider if in the future the company would like to expand or had a project that needed indispensable funds than the company had available right away.

China is the largest market in the world, and probably the hardest business environment. This narrative reflex China’s immense diversity, complexity, and its enormous competitive intensity is unrivalled versus the world.

Our research over the past five years into the battles between multinationals and local Chinese companies reveals that while market dominance by local champions is far from universal, it’s becoming ever more frequent. In industries as different as beer brewing, mobile-phone manufacturing and laundry-detergent production, Chinese companies — often seeming to appear from nowhere — are forcing multinationals to rethink their strategies and their hopes for explosive growth in the China market.

* Capital raised in an IPO can be used to pay off debt and thus reduce the interest costs and enhance the company’s debt to equity ratio

The market is extremely unpredictable and an unsuccessful IPO can result in a great loss of time as well as money for the company

The process of determining the IPO share price as an indicator of value is extremely significant for a company. Determining the share price target range depends on a number of factors, including the success of the “road show,” demand from investors, and comparison with other IPO valuations from similar companies. The final IPO share price will be somewhere within the target range and the market response to the IPO is a measure of whether the share price was correctly valuated.

It’s a trend that the Chinese government increasingly open market to foreign investors by reducing the barriers of entry. Recently, the State Council of China has altered the foreign investment policies, encouraged and supported the foreign investment on the service sector, especially the labour intensive but environmental friendly business in low developed central or western China (Chen & Liang, 2010). The government has also permitted the foreign investors to set up partnership business with local firms (Cao & Tai, 2009) rather than formerly approved options of joint venture and wholly owned. On the other hand, the current government and communist party are working to ease the social inequality. The minimum wage and annual income protection have been approved and increased in China at present (Wang et.al., 2009). Also, they have promoted the establishment of government-led labour union in major foreign business and expect to require all of them to set up in later (Kahn, 2006), which aim to create official-approved labour protection chapter and collective bargaining in foreign firms.

With China emerging as a global power in business within the last decade, knowing about doing business in China has become more important than ever. There are both many advantanges and challenges with doing business in China in this modern era, and understanding both sides of this coin is the key to being successful in China. Some aspects to keep in mind include the cultural barrier, the price of the work force in China compared to the United States, and have the “made in China” brand be accepted back in the United States.

The relationships with MNC’s represent perhaps the most important form of foreign-direct investment in China. Central and provincial/municipal governments clearly recognize the benefit of getting MNC’s to work with local companies, seeing opportunities to rapidly develop and improve the condition of Chinese companies just through exposing them to world-class management practices and technology. By piggybacking on the experience of cutting-edge western firms, China can quickly move through the fast track of technological development. This expertise will be necessary as the government seeks to manage the sheer breakneck pace by which the economy is growing, and the pressure is further underpinned by the political restlessness and social fragility of the nation’s large population.

It is always a challenge to evaluate IPO and find the appropriate offer price. At this case too, many measures and methods play a vital role. Usually IPO

In the 1990’s, there was around 100,000 state owned enterprises (SOE) in China and over half of them were losing money. Since 1992, most of the SOEs were given freedom to reform and extensive new investment was required for the action. IPO is one of the effective channels to raise capital in the market. Beside the Shanghai Stock Exchange and the Shenzhen Stock Exchange, SOE also sought listing out of the PRC and Hong Kong became their first destination.

One of the reasons is that Chinese IPO markets are known to be extremely underpriced and as a result China ranks first among 45 countries with respect to IPO underpricing. Guo et al. (2011) also suggested that there is a great number of optimistic investors waiting for high initial-day returns despise the greatly reduced potential benefit from IPOs, nevertheless they are still thought to be highly profitable. Lastly, during the last decade or so the IPO market in China has developed and maintained a good track record for profits. Consequently, the China example is encouraging to support the investors’ desire to launch XYZ Construction, Inc. IPO, which as aforementioned may very well benefit from an underpriced IPO market. Additionally, it is prudent to point out that there are expenses associated with an IPO yet these are worth in the long run. As suggested by Booth (2011.) “Underpricing comes at the expense of the original owners and venture capitalists of the issuing firm” (Booth, 2011, p. 4). However, there is a general tendency that investors do not sell their shares after the lockup period expires, nevertheless, underpricing will be considered a predictable cost of going public (Booth, 2011). Lastly, XYZ Construction, Inc. stakeholders should realize encouraging results as capital is generated while simultaneously growing the market capital in both domestic and international markets.

Why do so many good Chinese companies go public in foreign markets rather than let domestic investors share in the profits of growth?

This organizational pricing tactic gets the share prices opposite from the great demands of the community investors. The political incentive also plays a role in determining the underpricing of the IPO shares as underpricing allows for strong government-oriented framework in China. Through the high returns, these Politian’s entice more potential new issuers and political media attentions. Getting a wide reporting in the top political news televisions and other media outlets are vital for these politicians as such prominences may underwrite to their political position. Marcel argues that powerful partisan media in China is more likely to pull attention from the government officials that facilitate the advancement of these politicians’ career. The high demands of the IPO shares attribute to a huge quantity of national investors in China. As seen in the figures presented above, there was a growing number of individual investors involved in trading A-shares in the last decade. According to Diebold and Yilmaz, there have been over 200 million separate domestic stockholders in Chinese financial market by the end of 2012 (p.188). The great demands for emerging firms are also due to absent alternate investment choice in China, therefore the National Bureau of Statistics of China, the income per capital of the Chinese nationals increased on average by 14.5% per year on from 20020to 2012 (Diebold, Yilmaz, p.190). In the meantime, the

China’s recent rapid economic growth has astounded countries around the world, including the U.S. Domestic policies that improved incentives for economic competitiveness were one of the main reasons that China was so successful in increasing its Gross Domestic Product (GDP). “The combination of Chinese land and labor with the capital and expertise of Taiwan and Hong Kong industrialists provided a particularly important boost to exports and employment during the first decade of reform.” China attracted investments from multi-national corporations, which further contributed to China’s revival as a great trading nation.