Hong Kong’s IPO rally under scrutiny, as ZTE hits new U.S. headwinds

“There’s inevitably a bit of a herd instinct driving this wave of IPOs in Hong Kong.”

Key Takeaways:

• Hong Kong regulators are tightening their oversight of listing applications following a $28.4 billion IPO boom that is expected to extend into 2026
• ZTE faces a potential $1 billion fine over bribery allegations in Brazil as the U.S. moves to crack down on unfair competition by non-Western firms

By Doug Young & Rene Vanguestaine

As we head into the end of 2025, two distinct narratives are emerging from the world of China Inc. One involves a vibrant, albeit highly scrutinized, capital market in Hong Kong, while the other revisits the regulatory tribulations of a telecommunications giant. We believe these stories, though seemingly disconnected, highlight the evolving complexities of compliance and capital in the current geopolitical climate. While the Hong Kong Stock Exchange fights to maintain the integrity of its financial plumbing, Chinese companies abroad, especially ZTE (0763.HK; 000063.SHE) are being reminded that the reach of U.S. regulators remains long and unforgiving.

We start with outlook for the Hong Kong IPO market, following a banner year with impressive numbers for 2025. As of the end of November, 86 companies had raised a whopping $28.4 billion through Hong Kong IPOs this year. With a robust pipeline of more offerings on the way, this boom is likely to continue into the start of 2026. However, in an unusual development, the Hong Kong Stock Exchange and the Securities and Futures Commission issued a rare joint letter to underwriters warning of the declining quality of listing applications and urging them to address growing irregularities.

We think that’s nothing really new here. There’s precedent for this: years ago, before the pandemic, regulators contacted investment banks to make them more accountable for the quality of companies they brought to market. We view this recent letter not as a red flag, but as a refresher — a necessary reminder to keep the market in good order after it suddenly became hot in 2025.

The fundamental drivers for this rally remain unchanged as we look toward 2026. Capital needs in China are high, and for sectors favored by the government for national security, domestic markets are the main fundraising option. For everyone else, Hong Kong has become the de facto default avenue. The U.S. route remains blocked by a “dual barrier”: Beijing’s wariness of sharing sensitive economic data, and Washington’s attempt to prevent U.S. capital from funding Chinese technology with dual-purpose military or surveillance capabilities.

Furthermore, we believe a “herd instinct” is fueling the Hong Kong rush. When companies in a specific sector list and achieve decent valuations, their competitors rush to market to avoid being left behind, fearing that a higher cost of capital could become a competitive disadvantage.

However, a potential headwind looms for new listings in Hong Kong next year from across the Pacific. While 2025 saw few visible IPOs in the U.S., 2026 is likely to be different. We expect huge listings, such as SpaceX – rumored to be a $30 billion IPO – and OpenAI, to hit the U.S. market. Unless something negative occurs in American markets, this demand for capital in the U.S. could negatively impact the amount of liquidity available for Hong Kong.

Washington targets global corruption

Shifting gears, we examine the latest chapter in the saga of ZTE. The telecoms equipment giant, often viewed as the “little brother” to Huawei, is back in the U.S. doghouse. Years after paying a massive $1.19 billion fine for illegally selling products to Iran, ZTE is now facing allegations that it bribed officials to win contracts in Brazil. The company could face another fine of around $1 billion.

While cynicism might suggest such bribery is common in developing countries, we believe this case signals a shift. The U.S. is leveraging its economic power – specifically ZTE’s reliance on U.S. software and components – to enforce anti-corruption standards on non-U.S. companies. This is not unprecedented. European firms like Siemens have faced similar reckonings.

We believe the U.S. motivation here is rooted in fair competition. American companies are barred from such practices, and Washington views bribery by foreign competitors as counterproductive to U.S. interests. When U.S. manufacturers lose bids to Chinese or European companies, they often employ investigative units to uncover irregularities. Once reported, the wheels of justice turn.

While Beijing may construct a political narrative accusing the U.S. of bullying, the reality is that ZTE competes for significant contracts involving annual upgrades. We expect the U.S. to continue watching these activities closely. ZTE will likely survive – non-U.S. manufacturing alternatives exist, albeit perhaps at a higher cost or lower quality. But the message is clear: the U.S. intends to use its leverage to police the playing field, regardless of where the game is played.

About China Inc

China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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