China concept stocksIt is the investor's rightChinese stocks listed overseasA subsidiary or subsidiaries whose main assets or business are concentrated in the mainland of China. Since the newly revised Hong Kong listing rules in 2018, 13 US-listed Chinese stocks, including BABA, NetEase, Inc, Baidu, Inc. and Bilibili Inc., have been listed for the second time in Hong Kong. So far, the upsurge of returning to Hong Kong continues unabated:

Since the first Chinese company brilliance listed in the United States in 1992, as of March 31, 2021, there are a total of 263 Chinese stocks in the US market, with a market capitalization of about 1.62 trillion US dollars.

What is the structure and characteristics of Chinese stocks? What are the regression paths of Chinese stocks under the background of global game? What does dual listing and secondary listing mean for enterprises? What are the changes in the situation and the trend of future development when we return to Hong Kong for listing?This series of courses will be introduced to the above questions one by one.

First, why do mainland enterprises go to the United States for listing?

Before understanding the return of Chinese stocks to Hong Kong, I would like to answer a question: what are the reasons for many high-quality leading companies to list in the United States?

1. In the early days, the company was short of money-bringing in foreign capital-turning it into a joint venture-adopting a VIE structure-unable to list domestically.

Take the Internet industry as an example, the domestic Internet industry was very short of funds at the initial stage of its development, and the main sources of funds were angel funds, venture capital and private equity funds, and the investment institutions in those years were mainly overseas. Therefore, from the beginning of the establishment of many Internet enterprises that we are familiar with, most of them are Sino-foreign joint ventures. For example, the investor of BABA is Softbank Corp. of Japan.

However, due to the very strict restrictions on overseas investment in telecommunications-related enterprises (including the Internet), in order to be approved for establishment, the joint venture has to adoptVIE architectureTo allow overseas listed entities to control domestic business entities by agreement, such as Lenovo and other companies registered in the Cayman Islands and the Virgin Islands. Due to legal problems, the VIE architecture cannot be listed in China, so most emerging Internet companies will choose to list in the United States.

two。 In recent years, emerging enterprises listed in the United States: domestic and foreign examination and approval differences, overseas optimistic about Internet enterprises.

The main reason for the overseas listing of Internet enterprises is the difference in examination and approval at home and abroad. Internet companies are growing fast and will be ready to go public after round C financing, but most companies may just start to make a profit at this time.Does not meet the conditions for domestic listing to make profits for three consecutive years. For example, JD.com, Youku and other companies, although the future is bright, but not profitable for a long time.

Unlike the domestic market audit system, the US capital market adopts a registration system.There is no profit threshold for companies to be listed. As long as the company's business grows at a high speed and occupies a large market share, it can be listed even at a loss.

Second, from the perspective of the overall financing environment, the United States is generally optimistic about Internet companies and high-tech companies.And will give a high valuation, Youku, 360 such a high price-to-earnings ratio is an example. There are some other reasons, such as short time to market, no queuing, low cost and so on.

All in all, for Chinese giants such as BABA and JD.com, they are expected to give priority to the listing of US stocks and Hong Kong stocks at this stage because of overseas financing needs, industry regulation, VIE structure listing convenience and other aspects.

So, what is the market performance of these Chinese companies after they are listed overseas?

II. The characteristics and industry pattern of US-listed stocks

After listing overseas, Chinese stocks have developed into two poles: enterprises such as BABA and Tencent can compete with Apple Inc and Microsoft Corp in the US market, while other enterprises are faced with the dilemma of "refusing to accept the land and water" and "quietly delisting".

From the perspective of market value distribution, the existing 257 Chinese stocks are polarized.Among them, the majority of small and medium-sized companies, there are 100 companies with a market capitalization of less than US $100 million, accounting for 38.9%, and 29 companies with a market capitalization of more than US $10 billion, including some leading companies. From the perspective of ownership structure, state-owned holding enterprises account for about 5% of the number of Chinese-listed shares, while the rest are mainly private and public enterprises.

From the perspective of industry distribution, Chinese stocks are mainly Internet, education, science and technology and other new economy companies.Listed Chinese stocks in the United States are concentrated in two new economy sectors, optional consumption and information technology, while the market capitalization of the new economy sector accounts for 87%, which is significantly higher than 67% and 45% of the Hong Kong stock market and A stock market. In terms of the number of IPO, companies in the optional consumer and information technology industries are also the main force landing on American exchanges.

From the valuation point of view, the overall valuation of Chinese stocks in the United States is not high.As of August 15, 2020, the median PE of US Chinese-listed stocks excluding loss-making enterprises was 17.4, which was lower than the median PE of all US stocks excluding loss-making enterprises. The proportion of loss-making enterprises reached 45.7%, higher than the level of 33.6% of all US stocks. The valuation discount of US-listed stocks is not only related to the low degree of attention and information asymmetry in the environment of US stocks.

From the perspective of market performance, Chinese stocks have outperformed the CSI 300 and Hang Seng Index since 2016.However, more than 2/3 of Chinese companies are listed on Nasdaq, and the Nasdaq composite index has risen more than four times over the past decade, while the index of Chinese stocks has risen 149% over the same period, indicating that the market performance of Chinese stocks is relatively weak.

The weakness of US-listed stocks is related to frequent short selling. As early as mid-2019, foreign media kept revealing that the US authorities would gradually upgrade the restrictions on Chinese stocks, including delisting Chinese stocks listed in the United States, restricting pension investment in the Chinese market, and so on.

Although Chinese stocks continue to list in the United States in 2020, in the face of a complex international environment, more and more Chinese stocks begin to consider listing in multiple places.

Third, multi-place listing has become the mainstream, what is the difference between the rules of dual listing and secondary listing?

Under the circumstances of the deterioration of the international environment, the IPO issuance system of Hong Kong shares and Science and Technology Innovation Board has been continuously reformed, which has become more and more inclusive to enterprises in the new economy.

In 2018, the HKEx revised the listing rules to allow biotech companies that fail the financial qualification test on the motherboard to be listed, companies with "different rights of the same share" to be listed, and to allow the establishment of new secondary listing channels for Chinese and international companies seeking secondary listing in Hong Kong.

Multi-location listing is not only a temptation, but also for enterprisesThe advance can obtain financing and broaden the financing channels, while retreating can prevent the general policy from being tightened.For investors, the accessibility of high-quality assets has been greatly improved.

For Chinese listed companiesThere are different ways to return to Hong Kong stocks. It is mainly divided into: privatization and delisting before coming to Hong Kong to apply for listing (such as China Feihe Limited); dual listing in Hong Kong stocks and US stocks (such as BeiGene, Ltd.); secondary listing (such as BABA, etc.).

Among them, the most well-known way is "secondary listing", which is due to the large scale of redemption fund required by direct privatization and delisting. At the same time, for Chinese stocks with complex ownership structure and a high proportion of foreign shareholders, privatization and delisting costs are high and take a long time; while dual major listings need to meet the regulatory requirements of the two markets at the same time, the compliance cost of enterprises is higher. Therefore, the secondary listing of US stocks in Hong Kong while retaining the listing status of US stocks has become the first choice and mainstream for the return of US-listed stocks.

Next, we will make an in-depth analysis of the differences, advantages and disadvantages between dual listing and secondary listing, as well as the impact on enterprises.