China Is Experiencing a Boom in Share Sales

That is already the highest annual tally compared with any full year since 2010 and an unprecedented 27% of the global total, the data shows. If deals in Hong Kong by Chinese companies are added, the proportion rises to 43%.

Deal volumes are likely to remain robust. Ant Group Co., the financial-technology affiliate of Alibaba Group Holding Ltd. BABA 1.44% , is planning dual listings in both Hong Kong and on Shanghai’s STAR Market, which could together rank as the world’s largest-ever IPO.

One reason for the bonanza is that Chinese stock markets are outshining global peers, aided by the country’s economic recovery as the first in and first out of the coronavirus pandemic. The benchmark Shanghai Composite has advanced about 9% this year. That makes a listing more attractive for China’s growing ranks of large, unlisted companies.

A second catalyst has been the STAR Market, which launched last year. It is free from some of the constraints that usually apply in mainland Chinese markets, where there are unwritten curbs on valuations and where applicants can wait years for official approval before going public.

The STAR Market is a pet project of President Xi Jinping and is China’s third attempt to build a homegrown answer to Nasdaq, so it can help revitalize its economy and sharpen its edge in the fight for global tech dominance.

Additional listings for Chinese companies have also contributed to the upsurge. Companies with Hong Kong shares are eyeing STAR Market debuts, given higher potential valuations: STAR shares on average fetch prices of more than 93 times earnings, according to stock exchange data.

“It’s time for Chinese companies to return home for a listing,” said Choonshik Yi, a fund manager at UBP Asset Management Asia Ltd. “There’s a demand there and investors are willing to buy stocks at a premium. That makes it a no-brainer for prospective candidates.”

STAR rules permit stock sales by Chinese companies that are listed offshore with a market value of at least 200 billion yuan, the equivalent of $29.9 billion. For high-tech companies, the size requirement drops 90% to 20 billion yuan.

So far only companies listed in Hong Kong have taken advantage, but theoretically U.S.-traded firms and others could follow suit. Six Hong Kong-listed firms have raised nearly $11 billion in total from STAR listings, according to Dealogic. At least six more, including Geely Automobile Holdings Ltd. , and chip maker Shanghai Fudan Microelectronics Group Co. plan to follow suit.

Louis Lau, director of investments at Brandes Investment Partners in San Diego, said some Chinese companies feel they are unfairly treated in offshore markets, even Hong Kong.

“They feel that if they list in China, they will be able to get a higher valuation as people know their stories and brands,” he said.

The STAR Market is China’s biggest onshore market by funds raised this year, hosting more than $22 billion of IPOs and secondary listings.

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Top listings by funds raised in 2020, in billions

Other listing*

Mainland Chinese exchanges

Beijing-Shanghai

High Speed Railway

Cathay Biotech

CanSino Biologics

Shanghai Junshi

BioSciences

China Bohai Bank

Hangzhou Tigermed

Unlike China’s more traditional markets, the STAR board also accommodates Chinese companies that are incorporated abroad. That could allow it to win listings from startups like Ninebot—the owner of Segway e-scooters, which in September won approval for the first such STAR listing.

It is also drawing interest from subsidiaries of bigger companies. For example, U.S.-listed solar-power company JinkoSolar Holding Co. is planning to list a subsidiary on the STAR board, while peer Canadian Solar Inc. is considering a similar deal either on the STAR Market or Shenzhen’s similar ChiNext board.

Meanwhile, the threat of U.S. delistings and revamped listing rules are encouraging some Chinese firms with American shares to go public in Hong Kong.

“Homecoming listings allow Chinese companies access to new investors who find it difficult to invest in the U.S. market,” said Craig Coben, co-head of Asia-Pacific global capital markets at Bank of America.

It is also a chance to change broader investor perceptions, Mr. Coben said. After years listed in the U.S., companies “have evolved, in many cases they’ve improved, and they may want to reposition themselves with investors,” he said.

For China’s leaders, a healthy stock market helps wean the economy off a heavy reliance on debt, said Rob Mumford, an investment manager for emerging-market equities at GAM Investments. Mr. Mumford said Chinese investors are sitting on cash that could be used more productively with investments in innovative companies.

“It’s a careful balance between mobilizing savings, creating healthy, sustainable capital markets and not having an extreme pullback in the markets, which puts people off,” he said.

Including other kinds of equity raising, such as follow-on stock investments and convertible bonds, Chinese companies have raised a combined total of nearly $163 billion in equity on the mainland and in Hong Kong this year, 28% more than the $127 billion raised in all of 2019.

Write to Joanne Chiu at [email protected]