March 9, 2018 / 6:53 AM / 9 months ago

Breakingviews - China courts tech and Taiwan with Foxconn IPO

Terry Gou, founder and chairman of Foxconn reacts during an interview with Reuters in New Taipei City, Taiwan June 12, 2017. REUTERS/Eason Lam

HONG KONG (Reuters Breakingviews) - China is rolling out the welcome mat for technology companies - and Taiwan. Foxconn, the world’s largest electronics assembler and key Apple supplier, is set to list a $50 billion-plus subsidiary in Shanghai. The speedy approval shows Beijing is serious about luring tech giants onto mainland exchanges.

Companies hoping to list in China must brave a tedious and unpredictable application process. For the 400-plus outfits waiting in line for approval, this could take years. So Thursday’s green light, just 36 days after filing, is highly unusual.

Shenzhen-based Foxconn Industrial Internet merited special treatment, though. FII is pushing into areas Beijing sees as key to national industrial policies, like robotics, next-generation wireless networks and smart-manufacturing systems. And the three-year old firm is already a giant: it posted a net profit of 16.2 billion yuan, or $2.6 billion, last year. A 23 times earnings multiple – effectively the ceiling for pricing new stock in China - implies a valuation of $59 billion.

For Foxconn boss Terry Gou there are few downsides: the group is already highly dependent on staying in China’s good graces, employing hundreds of thousands of people on the mainland.

A big, high-tech addition to a mainland bourse would be a victory for China, whose government is keen to emphasise its move into new technologies. So-called old-economy stocks in areas like banking and energy dominate the Shanghai and Shenzhen stock exchanges. Beijing is also pushing local startups and offshore-listed web giants including Alibaba and Tencent to list at home, according to media reports.

FII’s Taiwanese roots help, too. The People’s Republic has been stepping up its campaign to attract more capital and talent from across the strait. Earlier this year, Beijing unveiled rules giving some companies from the island the same treatment and perks, such as tax rebates, that mainland peers enjoy. Local governments are targeting startups from Taiwan too, by offering entrepreneurs free office space, housing subsidies, tax breaks and cash handouts. Binding the two economies more closely together, and handing goodies to some of the restive younger generation, could help offset the chill in relations between the two governments.

FII suggests Beijing’s charm offensive is yielding results. 

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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