Wall Street banks are trying not to upset China on listings

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In the past year, a quiet but important change has taken place in the way Wall Street’s biggest banks take Chinese companies public. When they warn investors about risks, they are being more careful not to upset Beijing. 

The change centres on what might seem an unlikely setting for a political tussle: prospectus documents for overseas initial public offerings. In these documents, issuers typically detail potential risk factors for investors at length — often in stark terms to fend off lawsuits if things go awry.

Since China’s technology and education crackdowns wiped huge sums from the value of internationally listed companies, it is not a small matter.

When the pharmaceuticals group Wuxi Biologics listed in Hong Kong in 2017, a deal that Bank of America and Morgan Stanley worked on, its prospectus used language that could be deemed critical of China. It warned it might be “impossible” to comply strictly with some Chinese regulators’ demands because they “may not be consistently applied by other government authorities”. It said China’s legal system “is based in part on government policies and administrative rules that may have a retroactive effect”, meaning “we may not be aware of our violations of these policies and rules until some time after the violation” — language also used by other Chinese companies in prospectuses such as Xpeng, Li Auto, Asymchem and Tianqi Lithium in 2021 and 2022.

But by the time Wuxi XDC — a unit spun off from Wuxi — listed in Hong Kong in November, that type of language was no longer in favour. The parallel section of the Wuxi XDC prospectus, which names Morgan Stanley, Goldman Sachs and JPMorgan as sponsors, instead told investors that China’s laws and regulations were “continually evolving” and “we cannot foresee how [they] will be interpreted and enforced”. 

The…