A big build-up can ruin a good party. Chinese smartphone maker Xiaomi’s IPO was supposed to carry a sky-high valuation and act as a showcase for domestic capital markets. Instead, its mainland listing has been postponed and the targeted valuation of $100bn cut in half. The climbdown is embarrassing for both Xiaomi and the Chinese securities regulator.
The problem is that business and regulator goals rarely dovetail. China wants to showcase a new programme for listing tech groups that trade offshore. Yet the rules accompanying Chinese depositary receipts (CDRs) are overly burdensome.
In theory, China’s tech groups welcome the reforms. If Chinese retail investors were allowed access to offshore vehicles through CDRs, it would amount to an implicit blessing of these opaque structures. Domestic listings represent a new funding route for start-ups, with the added benefit that post-IPO market valuations tend to skew higher in China than elsewhere. Any relaxation of mainland listing rules would benefit entrepreneurs, especially companies, such as Xiaomi, that are losing money.