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Slouching Dragon, Cuddly Panda

April 7, 2011

Earlier this year in blogmosaic (Crouching Dragon?”, January 20), we suggested that companies from the People’s Republic of China were off to a fast start in 2011 on the US IPO market.  Indeed, a strong presence from China in this area would be consistent with what we’ve seen over the last few years, as the Chinese economy has generally surged.

Here are some statistics. Combining data from PriceWaterhouse Coopers reports for 2009 and 2010, we see that Chinese companies accounted for about one quarter of all the IPOs on the US market that closed during that two-year period.  Among non-US registrants, fully three quarters were headquartered in China.

Photo by Jan Alvin Dimla. Some rights reserved.

These are compelling numbers.  To the extent that going public is an indicator of economic vitality, the data indicates that China has positioned itself as a major force in the global economy.  So what has happened so far in 2011?

That’s where this story takes a major plot turn.  In the first quarter of this year, the presence of China’s companies has been less like a dragon and more like a roly poly Panda bear.  Through March 31, we had used the Knowledge Mosaic platform to track a total of 127 IPO registrations that came via form S-1 or F-1.  Of these, a mere 8 were Chinese companies.  That’s barely 6%.  And that represents only 25% of the IPOs from all non-US registrants.

How can we begin to account for this dramatic shift?  It’s true that the comparison is not quite apples-to-apples: we’re tracking IPO registrations, not all of which will be consummated, while PWC was tracking IPO closings.  And it’s not clear whether PWC’s data includes small, self-underwritten or best-efforts IPOs, as ours does.  Finally, one fiscal quarter is arguably a small sample size.

Still, if these factors had a drag on China’s numbers, it’s very hard to believe they fully explain the difference.  So here are two other possible explanations: First, that more Chinese companies are going public via the reverse merger.  We’ll look more closely at these numbers to see if we can identify a trend here.  Second, and the more intriguing hypothesis: the global recession is finally beginning to catch up with China.

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