Chinese investment banking will roar back in 2025

HONG KONG: Past performance, the saying goes, is not indicative of future results. For investment bankers in China’s once-bustling equity markets, that has been a particularly painful post-pandemic lesson to learn. After a long run of lean years, things are finally looking up.

Granted, it’s a low bar: initial public offerings by Chinese companies in 2024 raised just $12.4 billion as of late November, per Dealogic data, down for the third straight year and almost 90 per cent below a record haul of almost $115 billion in 2021. Fees to fuel investment bankers’ bonuses fell by a similar percentage.

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The last such three-year drop ran through the end of 2013 when – much like 2024 – Beijing slammed the brakes on listings for fear they would struggle and drag down the broader market. That drought ended spectacularly, with capital raised from Chinese IPOs jumping more than 280 per cent in 2014.

The current batch of China’s new-listings hopefuls clearly need the cash. Reuters reported in November that some 14,000 startups were at risk of investors exercising redemption rights of up to 8.6 trillion yuan. Those troubles are being compounded by a tepid growth outlook and the possibility of another trade war with the US.

Yet conditions look ripe for a deals revival. President Xi Jinping’s stated desire for more high-value startups provides top officials with a motive to turn the listings taps back on, giving venture capital both a chance to cash out and incentive to invest in fast-growing pre-IPO companies again.

Sure, regulators remain wary of domestic stock market debuts dragging down shares onshore, but offshore deals should be safe and can help boost growth at minimal cost. Wall Street might look risky with Donald Trump heading back to the White House, but Hong Kong remains a safe harbour where Chinese issuers are seeing renewed interest from global investors.

That’s good news for both deal-starved Chinese banks like CICC and CITIC and Western players that previously dominated offshore listings like Goldman Sachs and Morgan Stanley. Still, most companies that do go public are likely to price at a meaningful discount to their last funding rounds, an equity capital markets banker told Breakingviews.

The most vital ingredient, Beijing’s approval, would go a long way in boosting sentiment towards any such listings. The last few years may have been lean but, remember, future results aren’t always determined by past performance.