In recent weeks, there has been a surge in Chinese tech sector IPOs — including Alibaba, Weibo and JD.com — all planning to list on American exchanges. They’re smart to list away from home: doing so will give them access to more liquidity, and allow them to avoid certain restrictions — like the rule that companies cannot IPO in China if they haven’t yet turned a profit.
There are also compelling reasons for global investors to get excited about these offerings. China’s domestic consumer market is rapidly growing, and e-commerce is perhaps the most robust segment. There were over 6 billion parcels delivered in China in the first nine months of 2013 — up a staggering 61.2 percent from the same period a year prior. Online shoppers received half of those packages.
President Xi Jinping’s reforms are ambitious and unprecedented, and seek to transform the Chinese economy from a state-stimulated growth engine to a digital age, middle-class, consumer-driven economy in a country of more than 1.3 billion people. If these economic reforms succeed, they will unlock huge opportunities for tech companies that benefit from rising domestic consumption and a growing middle-class that has embraced the Internet.
Yet warning signs surrounding the economic reforms are giving potential investors pause. Recently, we’ve seen wealthy Chinese leaving China. Key leaders are concerned that Xi’s anti-corruption campaign is going too far, threatening to create fissures among powerful political factions. And investors are worried that faltering economic growth — a “new normal” of 7 percent growth, rather than the 10 percent or more of past years — will force China’s leadership to return to traditional stimulus measures, instead of continuing with the current pace of reform.
However, in all of these instances, there is reason to believe that the economic reform agenda will remain on track. Let’s start with the diaspora of Chinese elite. In a recent survey of China’s wealthiest citizens (defined as having a net worth above $1.6 million), 64 percent said they have already left the country or are planning to leave, up from 60 percent in 2013. This exodus is a sign of successful economic reform, because opening the economy and fighting corruption will threaten the vested interests of many of China’s super rich, prompting some of them to safeguard their fortunes overseas.