Kuaishou held an IPO in Hong Kong instead of the US after the trade war

From the left, the flags of the Hong Kong Stock Exchange, China and Hong Kong can be seen in the wind on May 6, 2019.

Anthony Wallace | AFP | Getty Images

Venture company DCM just generated a $ 16 billion return on the initial public offering of the Chinese social media app Kuaishou. It was listed in Hong Kong rather than the US, and DCM co-founder David Chao expects China’s most prominent tech startups to follow suit.

The main reason, says Chao, is four years of “political bashing” of Chinese companies by the Trump administration.

“They had this heightened controversial relationship between the US and China,” said Chao, whose 25-year-old firm supports startups in the US, China and Japan. Between Trump’s thumping against Huawei and a promise to delist some Chinese companies, “it really got the Chinese company to think about going public in the US,” Chao said.

In the past, the US stock exchanges have been very competitive in attracting top Chinese companies. The country’s two largest e-retailers, Alibaba and JD.com, went public on the Nasdaq in 2014. Years before they were preceded by the Internet company Baidu, the gaming platform NetEase and the travel site Ctrip (now Trip.com).

However, the trend has shifted away from the US as China’s greatest tech achievements choose to stay closer to home. Hong Kong is the fourth largest stock exchange in the world by total market capitalization of listed companies, after the New York Stock Exchange, Nasdaq and Shanghai Stock Exchange.

Hong Kong had already gained strength before the trade war between Trump and China, Chao said. The past four years have only accelerated it.

In January, the NYSE responded to then-President Trump’s order, signed in November, prohibiting Americans from investing in 31 companies classified by the Department of Defense as “communist Chinese military companies.” That list included NYSE companies China Telecom, China Mobile, and China Unicm, all of which are collectively listed in Hong Kong.

Regardless of the Biden government’s approach, Chao expects Hong Kong to remain strong because “companies see that they can go public in Hong Kong and be just as big”.

Much like the short video app TikTok, Kuaishou was the youngest major tech company to go public in Hong Kong after the Meituan website and smartphone maker Xiaomi went public in 2018. Tencent Music is preparing a $ 5 billion offering ahead of the NYSE in 2018 after its initial public offering in Hong Kong, a move Alibaba took in 2019 and NetEase last year.

Driver for Ele.me owned by Meituan and Alibaba on their way to deliver items to customers in Guangzhou, China.

Arjun Kharpal | CNBC

Kuaishou raised $ 41.28 billion (US $ 5.32 billion) in the IPO and gained nearly 200% on its February 5 debut. It continued to rise, closing the past week at Hong Kong $ 398, giving the company a market cap of about $ 50 billion.

DCM invested around $ 50 million in a share that is currently around $ 16 billion. It’s a space the company knows well. It also invested in Musical.ly, which Bytedance bought in 2017, and then closed it to move users to TikTok.

TikTok was also at odds with the Trump administration, which threatened to shut down the service last year. The ban was never implemented and Biden is looking into the matter.

Chao said Kuaishou talked about going public in the US before deciding “Hong Kong is best for them”. One of the influencing factors is that the Chinese internet giant Tencent, which went public in Hong Kong, is an important investor.

“Tencent has had a great run in the Hong Kong market,” said Chao.

Correction: In an earlier version of this story, Chaos Name was misspelled.

SEE: The Kuaishou debut shows that the technology game is not over.

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