Mar 21, 2022 - Economy

China's IPO shift after DiDi debacle

Illustration of a keyboard with one key as the Chinese flag.

Illustration: Annelise Capossela/Axios

Venture capital is about playing the long game, and that strategy may soon pay off in China.

Driving the news: China's government last week suggested it will loosen some of its restrictions on overseas listings by local companies, which began last summer with the DiDi debacle.

  • Some of this is still amorphous, with China just pledging more "predictable regulation."
  • China also says that it's working with the U.S. on a cooperation plan that clear a path for the sorts of security audits that D.C. demands and that Beijing detests.
  • In short, China wants to reverse its tech sector's flagging fortunes, and also to stabilize Hong Kong. This may even apply to DiDi, whose stock soared nearly 60% on Friday (albeit from a ridiculously low base).

When China began its crackdown, we noted that it was a stark reminder of the risks investors take when backing companies that live under authoritarian rule. But venture capitalists chose to accelerate instead of yield.

  • VCs invested nearly $114 billion into Chinese companies in 2021, per PitchBook.
  • That's well above the 2019 or 2020 totals, and just shy of the 2018 record.

Look ahead: The big question now is what happens to the big backlog of Chinese companies that postponed IPOs originally planned for late 2021. The macroenvironment has changed a lot in the intervening months, which means Chinese regulators may have caused some companies to miss their opportunity.

  • Well, at least for now. As a venture capitalist might advise: "Just wait a bit longer, because the winds will shift again."

Go deeper: China is making new billionaires much faster than the U.S.

Go deeper