Communist Country Outdoing U.S. in IPOs

Communist Country Outdoing U.S. in IPOs

When a communist country is having more and bigger initial public offerings (IPOs) than the United States, something is wrong.

Last month we wrote that IPOs are showing signs of a revival and noted that U.S. tech IPOs had already raised more than $7 billion this year.

In comparison, The Wall Street Journal reported that, “In recent months, at least a dozen Chinese companies with collective private valuations of roughly $500 billion have been in talks with bankers and potential investors about initial public offerings in the second half of this year or in early 2019.”

If all of those deals move forward, at least $50 billion worth of new shares could hit stock markets, according to The Journal.

Meanwhile, Renaissance Capital noted last week that the 59 IPOs priced in the U.S. so far this year is a +22.9% increase from last year, while total proceeds of $18.8 billion from those IPOs represent a +27.6% increase. Still, as we reported in 2016, the U.S. has half as many publicly listed companies trading on its exchanges as it did in 1996.

Too Many Unicorns

The Billion Dollar Startup Club, a list of venture-backed private companies valued at $1 billion or more compiled by The Wall Street Journal and DowJones Venture Source, lists 170 companies worldwide. A whopping 105 are based in the U.S., compared with 46 for all of Asia.

But having nearly two thirds of the world’s unicorns – as such companies are called – based in the U.S. is not necessarily a good thing. It may mean that startups are thriving and growing even without going public. But it also means that owners of successful startups are determining that the benefits of going public are not worth the cost and effort.

As we’ve previously noted, the number of U.S. IPOs has fallen for many reasons, including the cost of compliance with the Sarbanes-Oxley Act; Eliot Spitzer’s global research settlement, which resulted in a lack of research for small company stocks; the dot-com bubble, and the financial crisis.

When companies go public, they provide new opportunities for investors to participate in their success by investing in their stock. When they are venture funded, only wealthy investors benefit.

Public ownership is the ultimate expression of capitalism. So why is communist China outdoing the capitalist United States?

If there is an area where President Trump and Congress should concentrate on deregulation to create a healthier economy and wealthier nation, this is it.

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