Alibaba’s decision to head to the US for its blockbuster IPO – perhaps the world’s largest ever – is undoubtedly a major blow to Hong Kong’s global ambitions.
But chucking out years of hard-won progress for a single pay-day – with the risk of opening the market to myriad potential problems down the road – would have been the wrong move.
True, Hong Kong needs a shot in the arm. Trading volumes have been thin, IPOs choppy, while signs that some Hong Kong’s tycoons are looking to cash out of their local businesses have served to put the city in an existential funk. By enticing fresh liquidity – and perhaps other Chinese tech companies – Alibaba might just have been enough to change that.
But once the dust has settled, Hong Kong will look smart for having rejected a listing that would have undermined its entire financial sector ethos. As London and New York have learned to their cost, lowering barriers to woo big overseas deals can quickly backfire: witness scandals at ENRC and Bumi and New York’s own record with Chinese companies.
The US is able to accommodate different ownership structures – such as that sought by Alibaba – precisely because it has a legal system with the necessary checks and balances to safeguard shareholders, through class action lawsuits if needed. Hong Kong does not, and would require major new legislation to change that.
Thus, while London & New York have been rolling out the red carpets with abandon, Hong Kong’s regulator has been moving in the other direction.It is tightening its rules by putting deal sponsors on the hook for company wrongdoing so as not to get caught in a race to the bottom with places with less stringent requirements on IPO candidates.
Despite some valid concerns, Hong Kong is not about to lose its status as Asia’s financial centre, at least not until China has a freely open capital account, a respected legal system, and more transparent political environment – all distant prospects.
Hong Kong’s future is dependent on the likes of Alibaba – privately-owned, dynamic, fast-growing Chinese companies with global ambitions. But the city also needs the right rules to manage them.