Chinese private business confidence drops

These restrictions are found in the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors (关于外国投资者并购境内企业的规定), which were issued in 2006 by the State Administration of Foreign Exchange (Safe) in conjunction with the Ministry of Commerce (Mofcom) and three other agencies. (The revised Provisions for the Acquisition of Domestic Enterprises by Foreign Investors (关于外国投资者并购境内企业的规定) were issued by Mofcom in 2009.)

“In addition, we believe that the temporary suspension of new public offerings by the China Securities Regulatory Commission [CSRC], the PRC securities market watchdog, in the second half of 2008 and first half of 2009 had also contributed to the drop,” said Allen & Overy Shanghai partner Ji Zou.

Mainland China IPOs were effectively frozen from the end of September 2008. In July 2009, the CSRC started accepting applications for IPOs on Shenzhen's new Growth Enterprise Market (Gem) board, also known as ChiNext.

“During this suspension period, there was growing market speculation and uncertainty as to when the door for IPOs would be open again and when the Gem board would be launched, which we think has led to the change in the market's position towards IPOs in mainland China,” said Zou.

Another factor behind the statistics may be the increased emphasis that the government is placing on state-owned enterprises. This is making it more difficult for privately-owned, PRC-incorporated companies to get regulatory approval from the CSRC to list.

Grant Thornton, an international business advisory firm, commissioned Experian to carry out the research. In mainland China, the research was conducted through a mixture of face-to-face and telephone interviews with senior executives of medium to large privately-held businesses (defined as having 100 to 1000+ employees) across 10 industry sectors in Shanghai, Beijing and Guangzhou.

Zou said that companies outside of the cities included in the research seem to be more confident.

“[I]n other smaller regions where the growth enterprises and small-to-medium-sized privately-held businesses concentrate and flourish, we have actually seen growing enthusiasm towards public listing, especially following the launch of the Gem board in the second half of 2009,” she said. “We think that if the positive outlook of public offerings by the growth enterprises is fully factored into the analysis, the drop trend would be less dramatic.”

One of the key questions asked in the research was “Do you expect your business to undergo a public listing in the next three years?” Grant Thornton says it did not ask about the reasons behind the answer.

In the M&A space, 21% of companies surveyed in Hong Kong, and 26% of those in mainland China, said they planned expansion through acquisition within the next three years. The numbers were 31% and 41% last year.