Chinese e-commerce giant Alibaba has pulled a planned initial public offering in Hong Kong of its logistics subsidiary Cainiao, sparking fears that the city is losing its shine as a financial center amid a crackdown on dissent.

Chairman Joseph Tsai told an extraordinary meeting of shareholders on Tuesday that the company had halted plans for the Cainiao IPO because “the market in Asia is sluggish and lacks liquidity, so there is no point in pushing forward.”

The announcement came as a second national security law, called “Article 23,” took effect in Hong Kong, which critics say will create a minefield for businesses operating in the city, due to its broad and vague definitions of what constitutes a “state secret,” or “collusion with foreign forces.”

While Alibaba didn’t cite the Article 23 legislation as a factor in the decision, the move feeds into concerns that an ongoing crackdown on public dissent is having a negative impact on Hong Kong’s image as a global financial center.

Announcing the decision in a filing to the Hong Kong Stock Exchange, Alibaba said it would acquire the remainder of the company’s shares from minority shareholders.

The company plans to “align part of Cainiao’s business to better realize synergies” with other companies in the group and to support a “long-term strategic expansion of its global logistics network,” according to the statement.

Alibaba’s offline retail chain Freshippo also delayed its Hong Kong IPO in September 2023, citing weak sentiment for consumer stocks, to await a more favorable market, according to media reports.

Murky outlook

Speaking on RFA’s Financial Freedom talk show, current affairs commentator Joseph Ngan said Hong Kong’s rating as an IPO location has deteriorated in recent years, particularly after Chinese regulators forced Alibaba founder Jack Ma to withdraw planned Shanghai and Hong Kong IPOs for fin-tech subsidiary Ant Group in 2020.

“Alibaba’s fortunes haven’t been very good in recent years … and the mainland Chinese economy is growing slowly while Alibaba is clearly facing huge competition,” he said.

Financial commentator Simon Lee agreed, adding that a weak yuan had compounded the issue.

“The bigger reason is the exchange rate issue,” Lee told the show. “Is now the right time and the right environment for a mainland Chinese company to raise funds in Hong Kong? Will the stock even rise afterwards — if not, then why offer the shares?”

“Whether Hong Kong can revitalize its stock market remains to be seen — it’s no longer easy to do,” Lee said.

Slumping market

Former investment banking lawyer-turned-rights activist Samuel Bickett said Alibaba hadn’t hidden its reason for the cancellation of its IPO, which was the recent downturn in the Hong Kong stock market.

The benchmark Hang Seng index has tumbled 43% over the past five years, and is currently trading at similar levels to 1997, shortly after the city’s handover to China.

Even government attempts to rescue the market were unlikely to make the city an attractive location for future listings, he said.

“It seems clear that while there are elements in the Hong Kong government that very much want to attract more investment and remain relatively open, those elements of the government have very much lost out to the national security elements of the government,” Bickett told RFA in an interview on Monday.

“But as long as that situation persists, we’re not going to see a turn towards more openness and more security for banks, for their employees, for companies trying to IPO, for any sort of prospects for investment,” he said.

Meanwhile, Ngan told a separate RFA talk show that ratings agencies like Moody’s would have good reason to downgrade Hong Kong’s credit rating further in the wake of the Article 23 legislation, which took effect on Saturday, because it will likely increase the cost of corporate borrowing.

But there are also greater risks and costs around corporate compliance due to the new legislation, despite reassurances from Hong Kong officials that it will be business as usual, he said.

“In future, any decision on business operations, including selecting business partners, finding new funding and shareholders, or even something as simple as hiring a junior employee, must involve conducting a background check on the identity of the other party, including any national security risk from the other party,” Ngan said.

“These are the new compliance costs for doing business [in Hong Kong].”

Translated by Luisetta Mudie. Edited by Malcolm Foster.