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China is laying the groundwork for China Depository Receipts, allowing major firms to issue a type of secondary listing in the mainland.
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Some are worried that could negatively affect the Hong Kong IPO market, but experts said it's unlikely to have a major impact in the short term.
A slate of hot Chinese technology companies are expected to debut in Hong Kong this year, potentially making the city the top market for IPOs in the world.
Advisory firm PwC has estimated total fundraising could reach as much as 250 billion Hong Kong dollars ($31.2 billion) in 2018. But some of the excitement over the potential blockbuster year has been overshadowed by ascendant competition: markets in mainland China .
Potentially undercutting Hong Kong
The government in Beijing wants more Chinese tech companies to list domestically, rather than choosing to make their market debut in New York City .
In March, China introduced draft rules for China Depository Receipts , which are designed to let its biggest tech firms make a form of secondary listing that can be held by Chinese investors.
It's been suggested that that move from the mainland could undercut Hong Kong's own ability to compete with the New York IPO market: Chinese tech companies listed stateside may in the future issue mainland CDRs on the mainland instead of choosing Hong Kong for a secondary listing.
Shares of Hong Kong Exchanges and Clearing 388-HK initially came under pressure following the announcement of the CDR plan, although concern later diminished when more details about of the initiative were released, said Kenny Wen, a Hong Kong-based strategist at Everbright Sun Hung Kai.
That's partially because meeting the requirements to be a CDR issuer doesn't look easy. According to draft rules issues by the China Securities Regulatory Commission, Chinese companies listed abroad will need a market capitalization of at least 200 billion yuan ($31.3 billion) to join.
Just five listed companies — Tencent 700-HK , Alibaba BABA , Baidu , JD.com and Netease — currently qualify, according to a note from DBS Group Research last month. A number of currently unlisted companies, including Ant Financial and Lufax, "should be able to meet" the requirements if they decided to participate, analysts from the bank said.
Hong Kong, meanwhile, has tried to grow its own pool of potential listings. The city's exchange introduced new rules allowing listings that would never have been permitted before: companies with dual-class shareholding and biotechnology firms without revenues.