Hong Kong is sharpening its edge as a global IPO venue as the Chinese mainland tightens the screws on tech companies seeking overseas listings, but competition is fierce. 

Chinese mainland and Hong Kong stock exchanges are going all out to attract the mainland's data-rich unicorns (tech private startups valued at more than US$1 billion) that are mulling listings as mainland authorities step up cybersecurity checks on internet-based companies aiming to raise funds abroad.

Financial experts expect Hong Kong to join in the race to lure unicorns as the mainland's reviews of companies that launch initial public offerings in Hong Kong may be relaxed. But the experts noted that most of these companies are adopting a wait-and-see attitude as alternative IPO venues still appeal and details of the review regulations are yet to be finalized.

They believe that Hong Kong's core competitiveness in coaxing more "new economy" firms and enhancing its role as a world financial center lies in digitalizing the financial sector and building up a data hub.

Mainland regulators intensified cybersecurity reviews of internet platforms last month, following several tech companies' stock debuts in New York. These companies include ride-hailing giant Didi Global, online recruitment podium Boss Zhipin and truck-hailing company Yunmanman.

The Cyberspace Administration of China unveiled draft laws that require internet-based firms with over 1 million users' personal information to be scrutinized by the administration before they list overseas. The requirement made medical data group LinkDoc Technology, China's largest mobile sports platform Keep and podcasting platform Himalaya shelve their IPO plans in the United States recently.

The US has long been a favored IPO destination for Chinese firms seeking to "go out". According to financial provider Eastmoney, 37 mainland companies went public on US bourses in the first half of this year — just two less than the total in 2020.

Other data-rich enterprises which intend to list in the US may also be affected by the latest moves. Now they might consider shifting to other destinations that are also striving to lure technology unicorns.

Luring the unicorns

The Shanghai Stock Exchange's STAR Market and the Shenzhen Stock Exchange's Growth Enterprise Market implemented a registration-based IPO system in mid-2019 and early 2020, respectively, making them more appealing to mainland unicorns. The system is aimed at making the listing process more transparent than the approval-based structure under which companies were strictly screened.

China Telecom — the nation's largest fixed-line and the third-largest mobile telecommunication services provider — went public on the New York and Hong Kong stock exchanges in 2002, but decided to delist in the US in May, citing investment restrictions there. The telecoms giant listed on the Shanghai Stock Exchange today. The step is seen as a trend indicator, with more Chinese industry leaders returning to the mainland market.

Hong Kong is viewed as one of the world's favorite IPO venues. About 96 percent of IPO funds raised on the Hong Kong Stock Exchange in the first half of this year involved mainland companies.

Industry pundits said that the trend offers an opportunity for Hong Kong, but reckoned that barriers like a high IPO threshold and less market liquidity need to be considered.

Hong Kong Exchanges and Clearing said last month it has set up a Mainland China Advisory Group and a Mainland Markets Panel to "further elevate HKEX's role and that of Hong Kong as a key facilitator in China's connectivity with international markets".