The Chinese government is considering plans to allow shares of its largest tech titans, including Tencent Holdings Ltd. (TCEHY) and Alibaba Group (BABA), to trade back home, as reported by The Wall Street Journal. In recent days, coinciding with China's annual legislative meeting in Beijing, a handful of tech firms have announced that they would welcome the option for a mainland listing. (See also: Alibaba Group Sells $7B Worth of Dollar Bonds.)
State officials are reportedly looking at ways to bypass laws that currently prohibit firms incorporated overseas from going public on the mainland. The country's securities regulator is in discussions with state-owned investment banks to form a strategy that could significantly raise the profile of China's tightly controlled capital markets.
The initiative marks part of the Communist government's long-term goal to reverse years of China’s businesses going public overseas and instead choose mainland capital markets as their primary listings.
Wean Biggest Firms Off Wall Street
"At some point it makes sense for Alibaba and Tencent to have their primary listings in China ... The government has a long-term plan to wean these companies off the U.S,” said professor Paul Gillis of Peking University's Guanghua School of Management. One means by which already-listed firms and private businesses could trade on mainland exchanges is to allow them to issue depositary receipts. This would work around a law prohibiting companies incorporated abroad, such as Tencent and Alibaba, from going public in China, yet may give retail investors less rights than full shareholders.
Many of China's largest tech companies have employed a special corporate structure overseas in order to avoid Chinese restrictions on foreigners investing in the sector. The prestige of the U.S. market and rules that give companies more control over their businesses, including the options for a dual-class share structure, has also drawn firms away from the more stringent Chinese listings.
Big Caps' Return?
The move would pull two of the world's most valuable companies away from U.S. influence. Last year, Tencent, which owns popular messaging app WeChat, beat out e-commerce behemoth and Amazon.com Inc. (AMZN) rival Alibaba to become the first $500 billion valued Chinese tech company. Its shares have more than doubled in the most recent 12 months, reflected in a market capitalization of $528.2 billion, ahead of Facebook Inc. (FB), with a market cap of $526.2 billion. Hangzhou-based Alibaba, headed by founder and Chief Executive Officer Jack Ma, has also seen its stock nearly double, trading on the NYSE with a market cap of $465.1 billion.
Over the week, executive from firms including Tencent, search engine leader Baidu Inc. (BIDU), and e-commerce platform JD.com Inc. (JD), have all indicated that they are open to the idea. (See also: Alibaba to Buy Remainder of Ele.me from Baidu.)