CHINA Trends and Developments Contributed by: Steven Yu, Jeffrey Zhu, Jia Guo and Stella Jiang, Global Law Office
billion in 2023, and further to just CNY67.35 billion in 2024. By 2025, more than 70 companies had with - drawn their IPO applications, while over 300 remained in the CSRC’s review queue. These delays impose higher capital costs and create significant uncertainty regarding fund-level returns for PE/VCs. However, as A-share IPOs tightened, the Hong Kong IPO market began to recover in the second half of 2024 and rebounded strongly in the first half of 2025. The Hang Seng Index rose by approximately 20% during the first half of 2025. A total of 42 IPOs were completed on the Main Board, raising as much as HKD106.7 billion, reaffirming Hong Kong’s position as a global IPO hub. Share buyback: quantity is on the rise, but cash recovery rates remain low Besides an IPO, share buyback is also a potential exit route for PE/VCs in China. Statistics from the Asset Management Association of China indicate that over 90% of PE/VC investment includes share buyback provisions. The main triggering events for investors to exercise their buyback right are the failure to complete a “qualified IPO” and material breach by founders and the target company. Before 2019, investors rarely requested direct share buyback. However, as IPO review standards have tightened, the number of share buyback cases has increased. But statistics show that in court cases involving share buyback, among cases that enter judi - cial proceedings, the average recovery rate is only about 6%, and in cases reaching enforcement pro - ceedings, only about 4.62% are fully recovered. M&A: policy tailwinds, flexible deal structures and shorter timelines may make M&A top in PE/VCs’ new “exit playbook” Facing challenges with other exit routes, PE/VCs have actively explored alternative strategies. M&A used to be considered as a “second-best option” for PE/VC exits because they often yield lower prices than IPOs and require significant due diligence and negotiations. However, in the current environment, investors are reassessing the value of M&A and increasingly con - sidering them a preferred exit strategy.
Several factors support this shift: • Multiple policies have been issued to support China’s M&A market. Notably, the CSRC issued (i) the Eight Measures of the CSRC for Deepening Reform of the STAR Market to Serve Scientific and Technological Innovation and New Quality Produc - tive Forces on 19 June 2024, emphasising sup - porting M&A and reorganisations; (ii) the Opinions of the CSRC on Deepening the Reform of the M&A and Reorganisation Market for Listed Companies on 24 September 2024, relaxing restrictions on cross-border M&A by listed companies and intro - ducing simplified review procedures; and (iii) the revised Administrative Measures for the Material Asset Reorganisation of Listed Companies on 16 May 2025, introducing a “reverse linkage” between the investment term of private equity funds and the lock-up period for shares acquired through restruc - turings, which significantly removes institutional barriers to private equity funds’ participation in listed company M&A. • Compared with the constraints on secondary- market exits – such as share reduction limits, time restrictions and strict disclosure obligations – M&A transactions generally have shorter timelines and more lenient regulatory oversight. The timeline of M&A transactions is controllable, and they can generally be completed within six to 12 months. Moreover, M&A transactions are more flexible and can be structurally tailored to accommodate both buyers’ and sellers’ needs, incorporating special arrangements such as earn-out mechanisms, instalment payments and performance-based incentives. • The emergence of new M&A-focused funds and tailored support mechanisms is increasing the flexibility of M&A transactions. Statistics show that from the beginning of this year up to 21 May, a total of 110 listed companies on the A-share market have announced their participation in the establishment of industrial M&A funds, with the combined anticipated fundraising amount exceed - ing CNY128 billion. Such participation not only helps companies stay ahead of industry trends and strategically position themselves in high-quality projects, but also injects fresh momentum into
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