Alibaba has “returned home” to Hong Kong, the Chinese ecommerce group’s chief executive Daniel Zhang told a gathering of the great and the good last week.

Some homecoming. While Mr Zhang, his Alibaba deputies and local dignitaries took turns to bang the ceremonial gong on Tuesday to mark the company’s $13bn Hong Kong stock market debut, riot police prowled the perimeter of the exchange building. On the other side of Victoria Harbour, there was a stand-off between police and demonstrators holed up at a university.

Just days earlier, Hong Kong’s pro-democracy politicians had romped to victory in local elections, dislodging their pro-Beijing rivals and delivering a decisive thumbs down to the city’s chief executive Carrie Lam and China’s President Xi Jinping.

The elections followed almost six months of anti-government protests in the Asian finance hub that have left the city’s Hang Seng index up just 0.8 per cent this year, versus a nearly 28 per cent rise for China’s CSI 300.

Hong Kong’s economy is in recession and anti-mainland feeling has become so strong that a Mandarin-speaking banker was punched by protesters in the central business district. Alibaba’s Hong Kong employees have been told they can work from home amid the chaos. Some brokers even joked about the possibility of tear gas disrupting Alibaba’s listing ceremony.

So with all of this going on, why did the Chinese group choose to list in Hong Kong? The ecommerce-to-online payments giant did downsize the deal, from up to $20bn in the original plan. But the amount raised was still the largest equity offering in the world this year, topping Uber’s $8bn fundraising in May.

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Alibaba could have been content with its listing in New York, where it raised $25bn in an initial public offering in 2014. It is not as if the Hangzhou-based company was hard up for change, with $30bn of cash already on its books.

The real reasons it listed in Hong Kong are probably twofold. Beijing wants to lure its tech giants home against the backdrop of the US-Sino trade war. But more importantly, it wants to show that it is business as usual in Hong Kong.

The territory is, after all, China’s indispensable dollar cash machine. It is the only place within the world’s second-largest economy where capital can come and go as it pleases, governed by a stable legal system and underpinned by a freely convertible currency pegged to the greenback.

Mandatory Credit: Photo by JEROME FAVRE/EPA-EFE/Shutterstock (10485229e) Daniel Zhang, Chief Executive Officer of Alibaba Group, attends the company's stock trading debut at the headquarters of the Hong Kong Exchanges and Clearing in Hong Kong, China, 26 November 2019. Alibaba Group, operator of the Taobao and Tmall online trading platforms, raised 101.2 billion Hong Kong dollar (12.9 billion US doillar) by selling 575 million new shares to investors. Stock listing of ALibaba Group in Hong Kong, China - 26 Nov 2019
Mr Zhang stands in front of a clear message at the Hong Kong Stock Exchange © JEROME FAVRE/EPA-EFE/Shutterstock

The Alibaba IPO draws Hong Kong as a financial centre “closer into China’s orbit” said Christopher Balding, an associate professor at Fulbright University Vietnam.

“China needs Hong Kong for its access to dollars and because companies want its legal system for contracts,” said Andrew Sullivan, a director at broker Pearl Bridge Partners. He thinks that more Chinese companies listed overseas could follow Alibaba’s lead by selling shares in the city.

Despite Hong Kong’s ills, equity sales in Hong Kong have raked in about $35bn this year, Dealogic data show, topping last year’s $33bn. Most of that is from companies on the Chinese mainland. At that rate, the city’s exchange will outdo its big rivals, the New York Stock Exchange and Nasdaq.

The city is also the main conduit for Chinese companies seeking to tap dollar debt markets. Of the $222bn in bonds that have been issued outside of the mainland by Chinese corporates this year, most went through Hong Kong, according to Dealogic.

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China’s stumbling efforts to develop its onshore markets add to Hong Kong’s lustre. Shanghai’s Star Market, launched in July as the country’s answer to Nasdaq, has largely underwhelmed after a frenetic first few days of trading. “Alibaba listing in Hong Kong is a nail in the coffin” for Star, said one longtime observer of China’s financial markets.

There have been further hints that China is not yet ready for the big time. Last week, index provider MSCI ramped up pressure on China to push through reforms such as providing access to hedging tools and addressing problems with the country’s settlement cycle and holiday schedule. MSCI said it will not consider more Chinese stocks for inclusion in its flagship benchmarks until its concerns are resolved.

Washington’s threats to delist Chinese companies from US exchanges, even if just a gambit in the trade war, leaves Hong Kong looking like the only game in town for blue-chip Chinese listings. It helps that Hong Kong’s stock exchange has been obliging: last year it loosened restrictions on dual-class shares, which was precisely why Alibaba chose a more liberal regime in New York in the first place.

Charles Li, chief executive of the Hong Kong stock exchange, said he was welcoming Alibaba home “after five years of travelling afar”.

Some point to a deeper meaning. In luring Alibaba home, Beijing “is sending a message to America: ‘You can push ahead with delisting Chinese companies, but there are other places that they can go and list,’” said Fraser Howie, author of Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise. “Hong Kong can still benefit even in times of chaos.”

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