Choosing the right exchange to IPO is a strategic move

By Yang Ke and Piao Yu, Tian Yuan Law Firm; William Ji, William Ji & Co

The capital markets in mainland China, Hong Kong and the US, as the main exchanges on which Chinese enterprises list, have continued their trend of prosperous development. In the rush for IPOs, how should Chinese enterprises choose a stock exchange that is really suitable for them?

Mainland China

About 400 companies completed IPOs in the A-share market in 2020, raising nearly RMB470 billion (USD73.1 billion), the highest in the past 10 years. The number of IPOs and the amount raised nearly doubled compared to 2019. In the first quarter of this year, 100 enterprises listed in the A-share market, almost twice as many as that in the same period of last year, continuing the strong growth momentum.

Since 2020, a series of structural reforms have been made in the A-share market, such as the implementation of the new Securities Law, the normalisation of the pilot registration system of the Star Market, the implementation of a registration system for the GEM, and the merger of the small and medium-sized enterprise board and the main board of the Shenzhen Stock Exchange, further enhancing the competitiveness of A-share market in the global capital market. Among these measures, the launch of the Star Market and the implementation of the registration system undoubtedly played a crucial role. In 2020, seven of 10 biggest IPOs were in the Star Market, while more than 60 were listed in the GEM under the registration system.

杨科, Yang Ke, Partner, Tian Yuan Law Firm
Yang Ke
Tian Yuan Law Firm

Compared with Hong Kong and the US, an A-share IPO has always had a comparative advantage in terms of valuation, but A-share IPOs have a high profit requirement and a long cycle, so excluding many high-quality enterprises. However, under the registration system, the average time taken to IPO is close to that required for listing in mature overseas capital markets, and the Star Market has also opened the door for companies that have not yet turned a profit. As a result, many that planned to list in Hong Kong or the US now consider fundraising in the mainland capital markets.

Amid the IPO rush, 16 old stocks were ordered to be delisted in 2020, marking a new annual high in the history of forced delistings in the A-share market; 58 listed companies were investigated, more than 289 administrative penalties were made throughout the year, with total fines of more than RMB4 billion, and the largest single fine on record was issued. In 2021, regulators once again took practical action to explain that the “registration system is not a net to accept all fish”.

A number of companies withdrew their IPO applications, indicating that listing in the A-share market is no longer a safety net for the development of enterprises, but a new starting point for them. The system design will encourage more and more companies to pay more attention to their “internal strength”, and make IPOs a natural choice for enterprises.

Compared with mature capital markets such as those in Hong Kong and the US, the A-share market still has some way to go in fields like audit methods, withdrawal mechanism, legal remedies, etc., but we are also pleased to see that the A-share market is opening the door to the real economy with a more open mind. It can be expected that a healthily developing A-share market will find favour with more high-quality enterprises.

纪晓东, William Ji, Partner, William Ji & Co
William Ji
William Ji & Co

Hong Kong

In 2020, the HKEX topped the list of global IPOs for the seventh time in the past 12 years, raising HKD397.5 billion (USD51.2 billion). In addition to these encouraging results, out of the nearly 400 enterprises that applied for listing in the Hong Kong market, only 154 were successful.

In recent years, Hong Kong’s regulators have tightened their grip on major legal compliance issues. It is not easy to list in the most dynamic capital market in Asia. The authors believe that selecting the right intermediary team is the first step to a successful IPO in Hong Kong.

When it comes to selecting lawyers for a listing, companies must make strategic decisions before, during and after preparing to go public on the Hong Kong market:

. Before launching a listing plan, companies should engage experienced domestic and foreign lawyers as soon as possible to assist it in evaluating and building the most appropriate reorganisation structure and to anticipate and focus on sorting out major legal issues and corrective measures. If there are no precedents as reference for relevant issues or there is a dispute over the solution, the lawyers should assist the enterprise in seeking regulatory guidance from the HKEX before applying for listing so as to resolve the relevant issues ahead of time.

. During the listing project, the lawyers need to actively co-operate with the listing sponsor in terms of due diligence, and take the initiative to assist in co-ordinating other intermediary agencies to complete work in advance, so as to consider and address issues concerning the Hong Kong regulators, shorten the approval time of the regulators in the subsequent listing process and drive the listing schedule more efficiently.

. After submitting the listing application, the lawyers should quickly and efficiently reply to any questions raised by regulators and strive to enter the hearing stage as quickly as possible to ensure the issuance window; also, they should assist the company in inviting cornerstone investors to facilitate the smooth issuance.

朴昱, Piao Yu, Partner
Piao Yu
Tian Yuan Law Firm

The US

For enterprises with transformed and upgraded business forms, the capital market in the US is more suitable for them than the A-share market with its strict listing conditions and unpredictable audit cycle.

The decision on where to list your company is a long-term and key consideration in development strategy. The priority for many enterprises is to raise money quickly, and investors are more receptive to the US environment allowing for speedy selling of stock after an IPO. Thanks to the full registration system in the US stock market, it takes three months on average for an enterprise to complete a listing from initial filing to debut.

The combination of rapid IPO time, ample liquidity and high valuation in the US stock market, combined with a number of other factors in the post-epidemic era, have helped drive the US stock market to repeatedly hit new highs. Chinese companies remain enthusiastic about being listed in the US. In the first four months, Chinese enterprises raised nearly USD7 billion in the US. In 2020, 34 mainland companies completed IPOs in the US stock market, raising about USD12.4 billion. These enterprises are mainly from information services, media, financial services, medical and consumer industries. For companies considering a secondary listing in Hong Kong in response to geopolitical risks, a quick listing in the US stock market offers additional flexibility.

Meanwhile, it is worth considering whether the changing regulatory environment and the profitability of Chinese enterprises can sustain their continued high valuation and liquidity.

In addition, the Holding Foreign Companies Accountable Act exposes companies listed in the US to some audit risks. On 25 March, the US Securities and Exchange Commission announced that a final amendment to the act would delist foreign issuers that fail to meet the inspection requirements of the Public Company Accounting Oversight Board for accounting firms for three consecutive years.

In August last year, the US Treasury released on its website the Report on Protecting US Investors from Major Risks in Chinese Companies, recommending that the listing threshold should be raised for companies from jurisdictions where the oversight board cannot conduct inspections, and that companies already listed in the US should comply with the board’s inspection requirements by 2022.

At the same time, in accordance with the Regulations on Strengthening the Secrecy and Archive Management Related to Securities Issuing and Listing Overseas, issued by China, and the newly revised Securities Law, the provision of audit working papers and other activities to co-operate with investigations and evidence collection of overseas institutions shall also comply with the requirements of Chinese laws.

The ever-changing external environment requires Chinese enterprises that wish to be listed in the US to make full preparations in advance in terms of strengthening information disclosure and coping with overseas scrutiny.

Yang Ke is a partner at Tian Yuan Law Firm. He can be contacted on +86 10 5776 3555 or by email at

William Ji is a partner at Tian Yuan’s Hong Kong joint law firm, William Ji & Co. He can be contacted on +852 3500 8638 or by email at

Piao Yu is a partner at Tian Yuan Law Firm. She can be contacted on +86 10 5776 3886 or by email at