By Lub Bun Chong
The U.S.-China decoupling shows no signs of abating anytime soon. That means that, like it or not, Chinese companies need to go back to the drawing board and recalibrate their international fundraising and growth strategies.
In December 2021, the U.S. capital market regulator, the Securities and Exchange Commission, issued regulations threatening to delist U.S.-listed Chinese companies that do not meet certain audit requirements by 2024. At current count, there are some 270 Chinese companies that could be potentially delisted.
Just two weeks ago, the U.S. added another 33 Chinese companies, mostly tech, to its “unverified list,” placing stringent checks on their U.S. suppliers. This is in addition to the “entity list,” which requires some 300 Chinese companies to secure a license to purchase from U.S. suppliers.
ByteDance, the world’s most valuable unicorn last year at $350 billion according to Hurun, is a good case study on navigating international headwinds amid the U.S.-China decoupling.
In 2020, Trump issued an executive order banning TikTok in the U.S. if ByteDance, its Chinese owner, didn’t sell it to American owners within three months. Biden watered this down in 2021, but TikTok is still subject to a ban if transactions on its platform are deemed to be of “heightened risk.”
TikTok is a highly efficient and effective social media platform for the U.S. to rally its citizens, especially digitally savvy netizens. The same can be said for TikTok’s non-U.S. users around the world, especially in Southeast Asia which is a key theater for the U.S. Indo-Pacific strategy. This means that TikTok is relevant to the U.S.
The U.S.-China relationship is evolving quickly, and ByteDance’s international strategy needs to evolve in tandem to remain relevant. To do this, ByteDance needs a neutral location. It picked Singapore, which like ByteDance itself, is caught in the middle of U.S.-China tensions. Unsurprisingly, ByteDance appointed a native Singaporean as TikTok CEO to lead its international strategy, and it has been growing its presence in Singapore.
As one of China’s few internet companies to find true success outside its home market, ByteDance’s circumstances are somewhat unique. Nonetheless, its strategy offers useful insights for Chinese companies, including small- and medium-sized enterprises, hoping to be active outside their home market, be it for fundraising or new business opportunities.
Choice of markets
The most pertinent question is choice of markets. The American and European Union markets have long been the preferred choice for international expansion and fundraising. However, U.S.-China tensions require a re-think, and markets with closer proximities to China warrant serious consideration.
Northeast Asia is an intuitive choice given its close physical proximity to China. However, the 10-nation Association of Southeast Asia Nations, or ASEAN, also warrants consideration due to its closer historical, cultural and political ties.
The ASEAN countries have been building ties for centuries with China in politics, trade, culture and family, among others. With a population of more than 660 million, ASEAN is double the population of the U.S. and 1.5 times the EU. By itself, ASEAN has huge market potential. And with the appropriate localization strategy, it can also be deployed as a staging area for the U.S. and EU markets.
The “China equity story” in terms of business and corporate structure is necessary but no longer sufficient to ensure a company’s long-term success. In the past, key features of such an equity story included high quality shareholders, management’s ability to consistently meet or exceed performance goals, and a track record of good corporate governance. Clearly, cultivation of these elements in China continues to be vital. But this needs to be recalibrated with a balanced mix of ASEAN and China across the entire strategy and business model.
Similar diversification is needed for a company’s capital market strategy, which should mitigate exposure to volatilities stemming from U.S.-China tensions. Valuation and liquidity continue to be important considerations. But the choice of capital market will now need to be balanced against potential risks such as the U.S. delisting regulation.
The U.S., China and Hong Kong capital markets are the most exposed to fallout from potential tensions, and to a lesser extent, U.S.-aligned markets like London, Frankfurt and Tokyo. Against this backdrop, Singapore’s stature as an international financing hub merits consideration as a fundraising option despite being smaller than the U.S., China and Hong Kong.
There is no one-size-fits-all strategy and it should be customized according to a company’s circumstances and budget. Generally, more recalibration is necessary in industries where the U.S.-China tension is playing out, including technology, media, telecoms, resources and financial services, among others.
Apart from ByteDance, other global Chinese companies that have set up a presence and/or regional headquarters in Singapore include Alibaba (NYSE:BABA), Huawei Cloud, iQiyi (NASDAQ:IQ), Ping An Insurance’s OneConnect(NYSE:OCFT), Tencent (0700.HK) and Trip.com (NASDAQ:TCOM).
China launched its “Going Out” policy in 1999. Both China and the world are a very different place now, and the writing is on the wall: Chinese companies would do well to follow the lead of global Chinese companies and recalibrate their international strategy.
Lub Bun Chong is a partner of C Consultancy and Helios Strategic Advisors, advisory and corporate services firms based in Hong Kong and Singapore, respectively. He is also the author of “Managing a Chinese Partner.
