In July 2021, Chinese markets braced for a buzz. Syngenta, the Swiss agritech giant, filed for a $10bn-dollar listing on Shanghai’s STAR Market, a tech-focused stock exchange.
It should have been a win-win for China; Syngenta said it would invest some of the new financing into agricultural technology, promising an injection of cash into an important sector. But, more than two years later, Syngenta still hasn’t listed.
Beijing insists that China is open for business and that it is committed to supporting the private sector. But a renewed focus on national security coupled with rising geopolitical tensions is damaging confidence. Speaking in Beijing last week, Valdis Dombrovskis, the EU’s trade commissioner, said that European businesses were “questioning their position” in the world’s second largest economy.
In September, the chambers of commerce of the European Union and America published gloomy reports about the state of business in China. Of the companies surveyed by the American chamber, 52% said they were optimistic about the next five years, a record low. The European chamber’s report lambasted Beijing’s “mixed messaging”, which it said was eroding confidence.
“The level of ambiguity has become more prominent over the past year,” Jens Eskelund, the president of the European chamber, told the Guardian.
Syngenta’s case is a textbook example of the growing difficulties facing Chinese and foreign businesses alike in China. After falling out with the STAR Market for reasons that remain unclear, the company won approval in June from the Shanghai Stock Exchange. And although international banks including UBS, HSBC and JP Morgan have reportedly been vying to work on the multimillion dollar deal, geopolitical pressures have threatened to derail the listing.
Syngenta is owned by ChemChina, a Chinese state-owned chemical company that is associated with China’s military, according to the US department of defence. That means that, at a minimum, American banks could be subject to greater scrutiny from US regulators if they facilitate the Syngenta listing, which in turn could portend greater regulatory challenges.
But there are barriers from the Chinese side, too. At the start of this year the China Securities Regulatory Commission (CSRC) introduced a “traffic light” system for listings to direct funding into strategic areas, with local companies in certain industries such as Covid-19 testing and alcohol banned from China’s main stock markets.
Chinese companies wanting to list overseas face even more hurdles. In March, the CSRC issued a new set of rules governing international IPOs. Buried among the 25 regulations was an article that states that firms may not “distort or derogate the national laws and policies, business environment and judicial situation”.
That puts companies in a “catch-22 situation”, according to Henry Gao, a law professor at Singapore Management University. “If [companies] don’t comply with Chinese rules, they won’t be able to get the approval for the overseas listing; but if they follow the Chinese rules, they could be sued by the foreign exchanges and shareholders for misrepresentation.”
Last year, for example, Ming Yang Smart Energy Group, a Guangdong-based renewable energy company, listed on the London Stock Exchange, raising $657m. Its prospectus for the listing noted that the Chinese legal system is based “on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect”. Now, such disclosures, which are legally required by international stock exchanges, may violate Chinese rules.
Such measures mean that China has moved further away from market norms in a number of key areas according to Rhodium Group, a thinktank.
This month, Beijing said that it would create a new body to support the private sector in a bid to boost confidence. Businesses have been hammered by a two-year regulatory crackdown on some of China’s biggest tech, property and education companies.
In June, Beijing introduced a counter-espionage law, which said that the unauthorised obtaining of “documents, data, materials” could constitute a spying offence. The vague wording of the law spooked many businesspeople.
“How can you ensure that you are not inadvertently transmitting a state secret if you are not clear what is a state secret,” said Eskelund. The law came months after police visited the offices of several western consultancies and due diligence firms and, in the case of one, Mintz, detained five employees and fined the company $1.5m. Some of these visits are thought to be related to research done in areas deemed sensitive, such as Xinjiang supply chains and semiconductors.
“Frustration with the Chinese business environment had been building for a long time,” said an American consultant and investor who left China in 2020. He noted that many of the policies, particularly regarding the handling of data, have been in place since before Xi Jinping came to power in 2012.
But Xi’s rule has been characterised by a renewed focus on national security, with local and foreign businesses expected to support the priorities of Beijing, rather than the bottom line. But while no one expects international firms to withdraw from China altogether, the sparkle of the Chinese market may be starting to lose its shine.