The aim is to boost secondary markets and slow the rate of fresh fundraisings. Such regulatory action, like seizing mobile phones and laptops belonging to senior executives, has caused more companies to withdraw IPO applications.

The CSRC announced in April that it would conduct onsite inspections on 20% of initial public offering hopefuls in 2024—four times greater than its target last year. The watchdog, which tightened rules in March, reportedly wants to ensure that only top-tier firms (those preferred by the Beijing government) can access the country’s capital markets.

The nation’s largest bourses in Shenzhen and Shanghai haven’t accepted any IPO applications this year.

Over 130 Chinese IPO candidates scuttled their listing plans in 2024, data shows. Swiss agro giant Syngenta, for example, aborted a $9 billion offering in Shanghai.

China’s domestic benchmark figure rose 7% this year, but total funds from IPOs plummeted by almost 90% to $2.6 billion in the first four months. That’s the lowest level since 2013. 

CSRC and local stock exchange officials now show up at IPO applicants’ offices insisting to review their business and personal documents to gauge their financial heath and governance.

Similarly, underwriters for prospective IPOs must be present and be prepared to be questioned by regulators and bourses alike. Yet, this raises the risk that banks and brokerages will become ensnared in their clients’ regulatory problems. In some cases, bankers have needed to surrender their computers and mobile devices—lest they be left out of an IPO or even lose their jobs.

In February, the CSRC fined Shanghai semiconductor firm S2C for fraud in its listing application, despite the company cancelling its intended IPO in July 2022.

Such measures to rein in IPOs have dampened prospects for investment banks and professional services firms. China’s equity-related underwriting fees dropped 77% to $301 million last quarter from a year earlier—the lowest level since 2009.

Clement Cheung, CEO of Hong Kong’s Insurance Authority (IA), has emphasized the necessity of creating the right ecosystem for this endeavor. The city is witnessing increased engagement with issuers and investors, especially in China’s Greater Bay Area, alongside efforts to enhance talent and risk modeling capabilities in local universities.

A key challenge in natural-catastrophe insurance coverage is the scarcity of data, hindering risk assessment and underwriting. Hong Kong, considered a global financial center, has the potential to attract transnational entities and international insurers to issue ILS instruments. Notably, the World Bank listed $350 million in catastrophe bonds in Hong Kong in 2023, securing Chile against earthquake-related financial risks.

Catastrophe bonds transfer extreme weather risk to capital markets, expanding insurers’ capacity to underwrite higher risk. With global cat bond issuance reaching a record $15 billion in 2023, advocates tout ILS as a valuable tool for disaster risk management, offering investors asset diversification unaffected by interest rates and capital market fluctuations.

Despite efforts to grow the market, Hong Kong has seen limited success with only a few issuances, primarily for Chinese perils. In contrast, Singapore attracted high-quality issuers like Japanese carriers Tokio Marine and MS&AD—according to Mithun Varkey, editor in chief of Insurance Asia News—highlighting the competition between the two financial hubs.

Asia-Pacific and Africa remain highly vulnerable regions, with minimal insurance coverage for natural-disaster losses. While Hong Kong’s government has shown support for ILS development through regulatory measures and grant schemes, challenges persist, including investor awareness and market depth.

Hong Kong’s IA is engaging with potential issuers, including insurers, reinsurers, and Chinese municipalities, to expand the market. However, Varkey says Chinese insurers remain hesitant due to perceived higher costs compared to traditional fundraising methods. In contrast, Singapore has made strides in ILS, offering cybersecurity cat bonds and renewing grant schemes for longevity and mortality coverage. The competition between Hong Kong and Singapore underscores the importance of fostering a conducive environment and addressing market challenges to realize the potential of ILS in the region.        

Already, the overseas arm of mainland Chinese fund house Bosera Asset Management and Hong Kong-based virtual asset firm HashKey Capital have received “conditional approval” from the city’s Securities and Futures Commission (SFC) to jointly launch spot crypto ETFs, both firms announced in mid-April.

Chinese fund managers Harvest International and China Asset Management Company (ChinaAMC) are also expected to receive approvals from the city’s capital markets watchdog, Caixin has reported. ChinaAMC announced it is working on crypto ETF products after it received SFC approval to provide virtual asset management services.

Hong Kong crypto ETFs will not be available to mainland investors, however.

“This self-imposed limitation may unnecessarily constrain Hong Kong’s ETF competitive edge from its full potential,” says Joshua Chu, a crypto and fintech lawyer in the city.

The SFC initially published rules permitting spot crypto ETFs, including spot ether ETFs, in December, making the Chinese Special Administrative Region (SAR) the first Asian jurisdiction and the first international financial center to approve such a product. Conversely, the US Securities and Exchange Commission, which approved spot bitcoin ETFs in January, has persistently delayed deciding on ETFs that directly invest in ether, the native token of the Ethereum blockchain. A decision is expected late this month.

There is pressure for the SEC to hurry up. Since January, bitcoin ETFs have seen more than $200 billion in trading volume, according to crypto news and data outlet The Block.

Hong Kong’s securities regulator has not made any announcement on ETFs, as none have yet been officially approved. Provisional approvals enable market entrants to prepare to offer such funds, however, such as applying to Hong Kong Exchanges and Clearing (HKEX) to offer them on the city bourse. Spot crypto ETFs can benefit investors seeking exposure to virtual assets without creating blockchain wallets or attending to other cumbersome details. ETFs also have mainstream appeal, since they can be included in retirement funds.          

In the first quarter of 2024, dealmakers executed $4 billion worth of take-private transactions involving companies on the territory’s bourse. That’s up from $1.2 billion for all of 2023, according to Dealogic data.

The trend does not bode well for the Hong Kong Special Administrative Region (SAR). The market-capitalization benchmark Hang Seng Index fell 14% in 2023.

“On one end, lower valuations would encourage current holders and managers bargains,” says Bryane Michael, an economist and senior fellow at the University of Hong Kong’s Faculty of Law. “On the other end, one might see a socialist government taking more securities out of private hands [especially potentially foreign ones]. Deleveraging probably represents the middle, and most likely ground.”

Stricter listing regulations also led to record expulsions. The SEHK delisted 47 companies from its main board in 2023; 13 withdrew voluntarily. This follows 52 delistings in 2022, of which 37 were booted off.

Companies are believed to be leaving the city’s SAR’s stock market—either through voluntary delisting or privatization—because current valuations are deemed too low. In mid-March, for example, truck-manufacturer CIMC Vehicles offered HK$1.1 billion (approximately $140 million) to buy back all its listed shares not held by its major shareholder and delist from the exchange.

For CIMC, the low liquidity and cheap valuation created difficulty for the company to effectively conduct fundraising exercises on the Hong Kong stock exchange, the company said in a filing to HKEX.

Chinese sportswear maker Li Ning plans to take the company private after a 70% decline in its share price in 2023. Local media also reported that French skincare company L’Occitane consulted investors and advisers about going private.

According to Bloomberg, the Hang Seng Index traded at about 9.1 times forward earnings on average while the CSI 300 Index, which tracks major companies on the Shanghai and Shenzhen exchanges, traded with price-to-earnings ratios of 13.4. Meanwhile, members of the US S&P 500 Index traded at an average ratio of 23.2.

“These sudden shifts represent no sudden shock,” says Bryane Michael, a UK-based economic consultant and analyst. “Behind them lie structural problems waiting for almost a decade to materialize.” Since the early 2010s, “China’s subsidized industrial favorites have continued to rely on an export-led, quasi-autarkic relationship with partners. Together with a shadow economy consisting of easily a quarter of the overall economy, these represent some reasons for the Chinese economic motor’s seeming ‘sudden brake.’”

Michael sees “long-run state planning” as the culprit, with “the same consequences we have seen from India to Guyana. The collapse wasn’t a matter of ‘if’ but ‘when.’”

China’s unpredictable business environment, in tandem with crackdowns on foreign-based consultancies and tightened espionage laws, have heightened risks for international firms. Consulting firms like the Mintz Group and Bain used to provide critical insight for foreign firms to make informed investment decisions. Concerns are that China’s updated counterespionage law could reframe mundane business activities as national security risks.

Hong Kong, where many foreign corporations have their regional headquarters, last month enacted its own national security law under its mini-constitution as a Special Administrative Region. The new legislation—expanding the definition of “state secrets” and criminalizing information sharing about technological and economic developments—could have a chilling effect.

Geopolitical tensions between Beijing and the West—particularly the US—are also raising costs and uncertainty for businesses still operating in China. Both American and EU sanctions, export controls, and outbound investment restrictions directed at China may already be dissuading some from doing business there. Additionally, the push by Washington and its allies to lessen their reliance on Chinese manufactured goods and raw materials has prompted some producers to relocate to Southeast Asia and Latin America. This, coupled with Washington’s and Brussels’ efforts to rebuild their domestic industrial capacities and supply chains, promises to redirect investment that might otherwise have gone to China closer to home, or to “friendshore” it to allied nations.

Issuers and borrowers are choosing Chinese currency financing to hedge against foreign-exchange risks and to diversify from foreign currencies, according to Kenneth Hui, executive director of the Hong Kong Monetary Authority (HKMA).

Hui discussed the trend at the Global Loan Market Summit held in Hong Kong on Feb. 20. Use of the yuan in cross-border investment and trade have gained popularity in recent years, he said. China’s capital markets could provide more yuan-denominated assets for international investors coupled with cheaper funding costs in yuan compared with the US dollar, owing to several interest rate hikes by the Federal Reserve since March 2022.

Christopher Hui Ching-yu, Hong Kong’s secretary for financial services and the treasury, told the audience in attendance that as the world’s biggest offshore yuan hub, the region is distinctly suited to support offshore yuan needs. And Hong Kong is extending the coverage of profit tax exemptions to debt instruments issued in the territory by all mainland local governments at any level. Yuan debt issuances by the People’s Government of Hainan Province and the Shenzhen Municipal People’s Government have reportedly enjoyed such exemptions.

This year, the HKMA and the People’s Bank of China are also intensifying financial cooperation between Hong Kong and Beijing. This includes expanding the list of eligible collateral for the HKMA’s yuan liquidity facility to include onshore sovereign bonds. The HKMA also hopes to promote cross-border financing activities, and further open up the onshore repurchase agreement market to all foreign institutional investors. Additionally, Qualifying Debt Instruments (QDI), which offer beneficial tax treatment on trading profits and interest income from qualifying transactions, have also aided more bond issuances, according to South China Morning Post.

Three years of the pandemic almost compelled the territory toward electronic payments, leading to fewer checks written, HKAB Chairwoman Luanne Lim, also HSBC’s CEO in Hong Kong, told the press in the latter half of January.

She said, however, that it had yet to be determined if paper payments would be completely phased out. An HKAB task force exploring how to encourage check users to shift to e-payments will finalize the issue. Concerns linger about the remaining options for check users, Lim said.

Paper check transactions in the territory fell to HK$488.6 billion (approximately $62.5  billion) in December—a 13% year-on-year drop, according to Hong Kong Interbank Clearing data.

Hong Kong Monetary Authority data indicated that in 2015, the cost to process each check locally was about HK$15, costing the banking sector about HK$2 billion a year. The territory’s banking regulator and de facto central bank have since ceased updating the data.

Check usage in the Chinese Special Administrative Region has fallen 34% since August 2018, a month before the introduction of FPS, which enabled free and instant transfers. FPS transactions permit funds transfers between banks through mobile phones and, as of December, stand at HK$430.2 billion—a 39% year-on-year rise. Similarly, FPS transaction volumes have risen 12-fold since its September 2018 launch. Globally, more countries are moving away from paper payments toward digital options. For example, Australia and Singapore have announced a timeline to end paper checks. Yet, a similar 2009 plan was defeated in the UK—which issued the first paper check in 1695—due to public opposition.

HSBC’s goal is to fine-tune its growth strategy to meet shareholders’ return-on-capital expectations, the South China Morning Post reported. The focus on shareholder returns partially reflects the bank’s move to deflect last year’s breakup call by its largest stakeholder, Ping An Group.

The British bank acquired Citigroup’s retail wealth management arm in mainland China in October, assuming control over a portfolio of $3.6 billion in assets and deposits. In mid-December, it bought Singapore-based real estate manager SilkRoad Property Partners, which has $2 billion of assets under management.

HSBC will also increase its Asian investments, particularly mainland Chinese ventures. It raised its stake in HSBC Qianhai Securities to 90% in 2022 from 51% and assumed full ownership of HSBC Life China in 2020.

Meanwhile, the bank has offloaded units in North America and will continue to dispose of unproductive businesses. For example, HSBC will finalize the sale of its Canadian unit to the Royal Bank of Canada in the first quarter after selling its Greek and Russian businesses in the first half of 2023. It reached revised terms to sell its French retail business in June 2023.

In November, HSBC sold its retail and business bank in Mauritius to the Absa Group, and it closed its personal-banking unit in New Zealand in June. Yet, its wholesale banking business will continue in both markets, giving HSBC a footprint in 18 APAC markets. Shedding some of its underperforming, less-profitable businesses in the West is part of HSBC CEO Noel Quinn’s goal to streamline the bank’s operations and redirect its capital and resources toward growing Asian markets.

Chan, currently one of Hong Kong exchange’s two co-COOs, will assume her new role in May, succeeding CEO Nicolas Aguzin. In her current position, she oversees the exchange’s group strategy, human resources, mainland Chinese development, as well as LME Clear, the clearing house for the London Metal Exchange.

In recent years, HKEX has stressed the need for diversity and gender empowerment among the Hong Kong Special Administrative Region’s publicly traded companies.

Chan brings with her more than three decades of experience in legal and financial services. She joined HKEX as its head of listings in January 2020 after serving as a partner with law firm Davis Polk & Wardwell LLP in Hong Kong. Prior to that, she was head of IPO transactions at HKEX’s listing division and executive director of legal and compliance at Morgan Stanley. At the EIB, Calviño’s predecessor was Werner Hoyer, a German economist. Elected by her fellow European finance ministers, she was seen as a moderate technocrat and a calming force in the government of socialist Prime Minister Pedro Sanchez. While Calviño is not a member of the PSOE party, she supported his government’s decision to raise Spain’s minimum wage by 22% in 2019, the largest annual increase in more than 40 years.  

Two dozen US-listed Chinese companies have switched auditors to reduce the risk of being delisted from American stock exchanges, a Nikkei Asia study shows.

Of the 174 US-listed Chinese firms with accountancies requiring inspection, 24 had switched auditors since 2022. Fifteen moved from accountants in mainland China or Hong Kong to ones in the US or Singapore.

The decision to switch most likely stems from a US law, the Holding Foreign Companies Accountable Act (HFCAA), which states that Chinese companies can be delisted if their auditing firms do not comply with US accounting standards. That law also empowers the nonprofit Public Company Accounting Oversight Board (PCAOB) to inspect the auditors of US-listed Chinese firms. The act enables their delisting if the PCAOB finds they are not compliant for three consecutive years.

As the HFCAA was implemented, some US-listed Chinese companies sought to avoid the threat of delisting by opting for auditors in the US and Singapore, which permits PCAOB inspections.

In May, the PCAOB released results from its inquiries into mainland China and Hong Kong, stating it had found “unacceptable” flaws in seven audits involving two accounting firms—KPMG Huazhen and PwC Hong Kong.

In a statement, PwC said it was “working with the PCAOB to address the issues.” Similarly, KPMG Huazhen said it “acknowledges the findings of the PCAOB following its inspection.”

Between them, KPMG Huazhen and PwC Hong Kong have audited 40% of US-listed Chinese entities.

Beijing initially withheld cooperation with the US on the matter until April last year, when it permitted the PCAOB to inspect Chinese accountancies. The China Securities Regulatory Commission scrapped a requirement that only Chinese regulators can conduct on-site audits of Chinese companies listed overseas. It subsequently allowed auditors to take audit records outside the country for inspection.

Complete audit-record inspections are critical for all US-listed mainland Chinese entities if they wish to be in compliance with the HFCAA. The combined market value of those firms currently stands at about $1.5 trillion as of June 2022. They were audited by 15 Hong Kong and mainland Chinese firms registered with the PCAOB.