chinese companies wanting to go public in hong kong have had a hard time getting international investors to buy their shares local governments in china are stepping up to help fill the void—and seeking more in return listings in hong kong raised just 26 billion this year down 47 from the same period last year and far below 2021 levels according to dealogic many initial public offerings in the asian financial hub of late have leaned heavily on socalled cornerstone investors which commit ahead of time to buy chunks of the deals at their listing price entities controlled by chinese local governments purchased shares in nine of the 20 hong kong ipos so far this year that had cornerstone investors according to a wall street journal analysis in 2022 about a dozen ipos in the city with cornerstones bagged investments from chinesegovernmentbacked entities chinese cities and provinces have been trying to get companies to set up operations and expand in their locales hoping to create jobs and ultimately bring in tax revenue over the long run the financial incentives governments are doling out include buying shares when companies go public and in some cases making outright cash payouts to owners some statebacked investors have been explicit about what they want entities managed by anji county a region in eastern china’s zhejiang province that has participated in hong kong ipos this year started investment discussions by asking how likely the companies were to establish operations in the county according to people familiar with the matter   the same county last year said it would award companies’ controlling shareholders up to the equivalent of 28 million upon a listing in shanghai shenzhen beijing or overseas stock markets hong kong’s stock exchange says cornerstone investors shouldn’t get direct or indirect benefits other than guaranteed stock allocation at the ipo price the exchange allows for “arm’s length commercial arrangements” with strategic investors as long as the companies disclose the details some lawyers say that leaves a lot of room for informal quidproquo deals that aren’t in writing companies that receive government investments would likely feel obliged to reciprocate and follow through on verbal promises to help the locales so as to preserve their relationships deal makers say government entities from zhejiang where internet giant alibaba group holding is based have been among the most active government investors in hong kong’s ipo market this year zhejiang has said it wants to have 1000 companies from the province listed domestically or overseas by the end of 2025 seacon shipping a company based in shandong province raised 523 million in its march ipo including 104 million from a governmentowned company in a district of zhejiang’s huzhou city that focuses on tourism development the company now plans to set up operations in huzhou according to people familiar with the matter seacon and the stateowned enterprise didn’t sign any agreement detailing those plans one of the people said local governments in china are vying to meet goals tied to economic growth at a time when the country’s recovery from covid19 restrictions is fading and municipal debts are becoming a bigger burden the governments of sichuan province fujian province and the cities of guangzhou and tianjin have also recently indicated that they want more local companies to go public chinese cities have also been wooing western businesses with financial incentives but the us could regard cash payouts from governments as illegal bribes “capital markets are regarded as a yardstick in terms of measuring the potential of the enterprise in a particular region” said shuang ding chief china economist at standard chartered laekna a shanghaibased maker of cancer drugs recently raised 1012 million in its june ipo sourcing 86 of the orders from cornerstone investors nearly 60 of the shares on offer went to yuyao yangming equity investment fund which is controlled by an entity under the government of the port city of ningbo in zhejiang three months earlier the company entered into an agreement with yuyao’s controlling shareholder to set up operations in a ningbo industrial park in return laekna said it would receive subsidies on workers’ pay residentialproperty purchases and vehicles from the park the company said in its listing prospectus that it would have entered into that cooperation agreement even if yuyao hadn’t agreed to buy a portion of its ipo “the local governments’ growth strategy right now is desperately trying to get any money they can from anywhere” said thomas gatley a china strategist at gavekal dragonomics “it’s just a question of whether they can do it on a sufficient scale for it to matter” he said of their cornerstone investments in ipos