Chinese companies prefer Switzerland to the US and UK for raising money abroad

Chinese companies are flocking to Switzerland to raise capital after geopolitical tensions in the US and stricter auditing standards in the UK prevented them from listing.

According to SIX, which operates the Swiss stock exchange, nine Chinese companies went public in Zurich last year, raising $3.2 billion in the European country. That far exceeds the $470 million they raised in New York, according to data from Dealogic.

Their shift in focus to Switzerland comes in response to months of tension between Beijing and Washington over standards for Chinese companies in American markets. The US sought greater access to the financial audits of listed companies, but China resisted, citing a desire to protect state secrets.

Zurich has particularly benefited from the uneasiness because it has less stringent requirements for the transparency of corporate audits.

According to bankers and stock exchange executives, dozens more Chinese companies plan to use a link set up last year linking the Shanghai and Shenzhen stock exchanges to the main market in Zurich.

The “Stock Connect” scheme, modeled on a similar model to London’s, allows companies listed in one location to raise capital in another. In 2022, only five more companies entered the Swiss market.

“Switzerland is very much at risk of becoming a Chinese market,” said an executive at a competing exchange, adding that if all Chinese companies that have announced plans to list go ahead, “then there will be more capital than there was in the past.” All European IPO volumes last year were raised abroad. You want a lot of activity, but you end up taking a big risk when the vast amount of your security comes from a single jurisdiction.”

So far this year, the only listing in Switzerland has been China’s – Zhejiang HangKe Technology Incorporated Co, which manufactures lithium battery equipment and has raised $172 million.

Instead of doing a full listing, companies using Stock Connect issue Global Depositary Receipts representing stocks of foreign companies while the issuer holds the underlying stocks in its home market.

Valeria Ceccarelli, Head of Primary Markets at SIX, said the rise in Chinese listings “confirms the attractiveness of SIX and the Swiss financial center as an international hub for companies to raise capital”.

For Chinese companies, overseas listings make it easier to circumvent strict domestic capital controls. Companies were raising money to fund their international growth and increase their visibility in Europe, Ceccarelli added.

Some Chinese companies are also eyeing the UK, taking advantage of the London Stock Exchange’s Stock Connect scheme, which has been in place since 2019 and resulted in five issuers raising about $6.5 billion.

Two companies have announced plans to list their shares in the UK later this year – chemicals company Yongtai and manufacturing group Lingyi iTech.

But stock market officials say a decision by Britain’s Financial Reporting Council not to consider Chinese auditing standards equivalent to international standards has pushed more companies to Switzerland that accept Chinese accounts for depository receipts.

“Swiss authorities . . . They do not waive audit obligations, but treat Chinese companies within the framework of the Swiss Audit Oversight Act like other foreign companies,” says Ceccarelli.

“In the end, the company decides where to list,” she said, adding that the exchange is aware of 20 other Chinese companies planning to list in Europe via East Germany.