Hong Kong might be the obvious choice for Chinese tech IPOs after the central government tightened rules on overseas listings, but tough accounting and disclosure requirements still stand in the way, suggesting it could be months before the stock exchange (HKSE) starts to benefit, and even then, many aspiring companies might not make it. This is according to an analysis on SCMP written by its veteran capital-markets reporter, Enoch Yiu.
Companies that want to shift their listing from the US to Hong Kong may have to rework their accounts and application documents to comply with the tougher standards imposed by the Hong Kong bourse operator than US exchanges, accounting and legal sources said.
Some of the biggest differences include accounting principles and reporting standards, offshore ownership structures and classes of shares with variable voting rights. “Listing requirements in Hong Kong are stricter,” said Wang Hang, a partner at legal firm Baker McKenzie in Beijing. “The key is to evaluate whether the issuer can fulfil the listing conditions. That is to say, not all of these companies are capable of shifting [their choice of venue] to Hong Kong.”
Tech giant Alibaba has announced it will be the anchor investor in a HK$2 billion fund to support startups in the Greater Bay Area.
The fund will target new companies in the region that focus on “sustainability, deep tech, health tech, artificial intelligence, automation and digital transformation of traditional manufacturing”, according to a company statement.
China’s most pioneering special economic zone, the one that is now referred to as a PDZSCC, Shenzhen has broken what appears to be new international ground on consumer data-protection laws. As reported by the municipal government this week, a new set of regulations stipulates that:
App-makers may not deny service to users who do not consent to “over-collection” of their personal information;
Users may specifically refuse consent for data-driven behavioral profiling;
Apps may not make personalized recommendations to children under the age of 14;
Users may not be forced to submit to facial recognition;
There are also some key provisions related to app makers using “illegal means to obtain data from other market entities,” which is a bit unclear.
Fines can range from 50,000 yuan to 500,000 yuan in “standard” cases, whereas in “serious” cases, they can be as high as 5% of the app-maker’s previous year’s revenue.
China’s market for “smart home” or Internet of Things products continues to grow rapidly, and companies based in Guangdong appear to be in the forefront. According to research data cited by local media, the industry generated sales of 170 billion in 2020, up from just 40 billion yuan in 2015. Over the past year, 7,800 new companies were registered in this industry, with half coming from Guangdong.
According to a report recently released by Shenwan Hongyuan, the smart home industry in China has reached just 4.9% of homes. This compares with 32% in the United States and 20% in Europe.
Although the country’s Internet giants such as Huawei, Xiaomi, Alibaba, Baidu, and JD.com are quite dominant in IoT, they are finding stiff competition from traditional home-appliance manufacturers such as Haier, Midea and Gree.
The pandemic had shown ways in which blockchain technology could be beneficial for Hong Kong positioning itself as a hub for decentralized finance (DeFi) in the Greater Bay Area, an SCMP conference heard last week. Unfortunately, however, the city was also seen to be lagging in the field.
Lucy Gazmararian, founder and managing partner of Token Bay Capital, an early-stage venture fund for digital assets and blockchain, said that blockchain’s operational efficiencies would allow a levelling of the playing field in financial services, which would in turn boost innovation across the region. However, she said, Hong Kong’s finance industry is “lagging behind the pace of innovation” and making it “fit for a digital economy” will require a radical shift.
Other speakers at the conference suggested blockchain technology could be useful for banks in verifying documentation for cross-border applications, and even in the fight against climate change.
In another event at the same conference, speakers lamented the fact that low public trust in the Hong Kong government had held back its smart city initiatives, citing the Leave Home Safe app as a prime example.
One speaker said better communication was needed, citing the example of the benefits to be gained from 5G systems that were poorly understood by the public. “We need to think of how to let them get involved with technologies,” said Gary Yeung, president of the Smart City Consortium.
A bicyle that uses AI and lidar sensors to help riders avoid crashes and ride more carefully is under development at Huawei, the GBA tech giant headquartered in Shenzhen. But it wasn’t a product that came out of the company’s regular R&D department. According to local media, the bike, which will cost around 10,000 yuan when launched, was designed by a recent university graduate who came up through Huawei’s youth-development program.
Referred to by local media as “Huawei’s boy wonder”, Jun Zhihui graduated from the University of Electronic Science and Technology, in Chengdu, Sichuan, in 2018. After a few years kicking around, which included a stint at smartphone maker Oppo, based in Dongguan, Jun joined Huawei’s “Talented Youth Project” last year and had been engaged as an AI systems architect.
The bike apparently allows for full self-riding, which is hard to imagine, because of the obvious ease of falling off a two-wheeler when its onboard computer decides to change direction. But in its description, the bike is more realistically useful for collision avoidance and route planning. It might also help to have an “auto-follow” function that allows for the bike to come to its owner, rather like Tesla’s “summons” feature.
Shenzhen has opened this year’s application window for companies to be classified as high tech. The distinction is an important one, as companies will be eligible for subsidies from the city government of up to 10 % of their research and development budgets, capped at 3 million yuan.
The city, which is well established as China’s leading technology hub, has seen the number of state-level high tech companies soar by 2.4 times in the past five years, currently numbering 18,650. Their annual output has grown from 584.8 billion yuan in 2015 to 974.7 billion yuan in 2020. Shenzhen’s latest Five Year Plan, released officially this week, envisages 22,000 national high tech firms in the city by 2025.
Shenzhen’s Bao’an district is offering subsidies of up to 100 million yuan for “manufacturing innovation centers” to be established there. The district, which centers on the international airport but is a large-scale logistics and commerce hub in the making, has just released a plan aimed at transforming traditional manufacturing industries through the IoT model, which in China is known as the “industrial internet”.
A set of detailed criteria for the subsidies has been formulated. Any enterprise formally identified as being engaged in industrial internet development, by authorities at the municipal, provincial, or national level, qualifies for financial support if they set up in Bao’an. The district will add up to 50% of funding provided by these higher-level authorities, capped at 50% of the enterprise’s total required investment. Depending on the size of the project, these can be 100 million yuan, 50 million yuan, or 30 million yuan.
Recruitment website Zhaopin has released a report showing that Guangzhou and Shenzhen are by far the country’s biggest recruiters of talent for the burgeoning area of cross-border e-commerce. In the first quarter of 2021, positions advertised on the platform for foreign trade import and export industries overall rose 11.2% year-on-year, with Guangdong ranking just ninth at 18.3%. However, the fastest-growing segment was in cross-border e-commerce operations, where the province accounts for 51.6% of the country’s overall demand. Nearly all of this came from its two biggest cities, Shenzhen and Guangzhou, which accounted for a combined 48.8% of the total.
Cross-border e-commerce is a category denoting direct online sales between merchants in China and buyers overseas. It includes, for instance, sales by Chinese firms on Amazon.com and Aliexpress.com.
Shenzhen has opened applications for subsidies that can be worth up to 3 million yuan for projects focused on building digital public services. The promotion plan is aimed primarily at projects involving high-end software, innovative apps, data security, blockchain technology, Internet innovation, big data and cloud computing. Organizers of forums or exhibitions in these key areas may also apply.