Geopolitical Crossroads: Assessing the Reputational and Compliance Costs of U.S. Banks in Chinese Tech IPOs

The underwriting of Chinese technology IPOs by U.S. banks has become a high-stakes geopolitical chess game. In 2025, the $5.2 billion Hong Kong IPO of Contemporary Amperex Technology Co. Ltd. (CATL), the world's largest electric vehicle battery manufacturer, epitomized the growing scrutiny faced by JPMorgan Chase & Co. and Bank of America Corp. The U.S. House Select Committee on the Chinese Communist Party (CCP) has issued subpoenas to both banks, accusing them of violating the Foreign Agents Registration Act (FARA) and enabling a company allegedly tied to U.S.-sanctioned entities like the Xinjiang Production and Construction Corps (XPCC). These actions reflect a broader shift in U.S. policy, where financial incentives are increasingly being weighed against national security and human rights concerns.

The CATL Case: A Microcosm of Geopolitical Tensions

CATL's IPO, which raised $5.2 billion in Hong Kong, became a lightning rod for criticism from U.S. lawmakers. The Department of Defense designated CATL as a “Chinese military company” in January 2025 due to its alleged role in supplying batteries for China's modernizing submarine fleet. Despite these red flags, JPMorgan and Bank of America proceeded with the underwriting, citing thorough due diligence and the absence of direct U.S. sanctions on CATL. However, the House Select Committee's investigation has raised questions about the banks' compliance with FARA, which requires disclosure of activities on behalf of foreign principals.

The reputational risks for the banks are acute. Bank of America's 2024 annual report highlighted a 12% revenue increase in its Asia-Pacific division, underscoring the region's economic importance. Yet, the House Select Committee's warnings of potential FARA investigations or sanctions could disrupt not only the CATL IPO but also the banks' broader China strategy. Jamie Dimon, JPMorgan's CEO, defended the deal in a Bloomberg TV interview, stating that the U.S. had not imposed sanctions on CATL. But this argument overlooks the broader policy shift: the Biden administration's 2025 expansion of export restrictions on quantum computing and advanced semiconductors, coupled with the Trump-era tariffs, has created a regulatory environment where “profit over principle” stances are increasingly untenable.

Historical Precedents: A Cautionary Tale

The risks of underwriting Chinese tech IPOs are not new. The 2020 collapse of Ant Group's $35 billion IPO, orchestrated by JPMorgan and Citigroup, remains a landmark case. The Chinese government's last-minute intervention exposed the fragility of cross-border financial deals in an era of heightened regulatory arbitrage. Similarly, Luckin Coffee's 2020 fraud scandal—where the company overstated revenues by 60%—led to an 80% drop in its stock price and its eventual delisting. These cases illustrate the reputational and compliance costs that U.S. banks face when navigating China's opaque regulatory landscape.

The 2010s reverse merger (CRM) craze further exemplifies these risks. CRMs, which allowed Chinese private firms to bypass traditional IPO processes, saw a 17% fraud rate—double that of non-China CRMs. While some CRMs outperformed their peers in the short term, the long-term reputational damage for underwriters was significant. For instance, the 2021 regulatory crackdown on Didi Global, which listed in New York, forced the company to delist in Hong Kong and abandon its U.S. market presence altogether.

Regulatory Frameworks: A Double-Edged Sword

The U.S. Securities and Exchange Commission (SEC) has also tightened its grip on Chinese IPOs. Under the Holding Foreign Companies Accountable Act (HFCAA), the SEC can delist firms whose auditors fail to comply with U.S. inspection standards. The China Securities Regulatory Commission (CSRC)'s 2023 Trial Administrative Measures further complicates the landscape, requiring Chinese companies to obtain domestic approval before overseas listings. These measures, while aimed at enhancing transparency, have created a bottleneck for IPOs, with delays of six months or more becoming common.

The U.S. Treasury's 2025 investment restrictions on semiconductors, AI, and quantum computing have added another layer of complexity. These rules, which took effect in January 2025, have discouraged U.S. venture capital from backing Chinese startups in these sectors. Meanwhile, the CSRC's scrutiny of Variable Interest Entity (VIE) structures—used by companies like Alibaba to circumvent foreign ownership rules—has raised concerns about the legal enforceability of such arrangements.

Investment Implications: Balancing Risk and Reward

For investors, the CATL IPO and similar deals present a paradox. On one hand, early backers of Chinese tech firms could benefit from their dominance in global supply chains—CATL, for instance, is projected to capture 30% of the EV battery market by 2030. On the other, the reputational and regulatory risks for underwriters are substantial. The House Select Committee's threat of sanctions or FARA investigations could trigger market volatility, as seen in the 2020 Ant Group fiasco.

Investors are advised to adopt a diversified approach. Diversification across geographies and sectors can mitigate exposure to geopolitical shocks. For example, while U.S. banks face scrutiny in China, their Asian-Pacific peers—such as HSBC or Standard Chartered—may offer alternative avenues for accessing the region's financial markets. Additionally, monitoring regulatory signals from the House Select Committee, the Treasury Department, and the CSRC is critical.

The Road Ahead: Strategic Patience or Retreat?

The U.S. financial sector is at a crossroads. While the America First Investment Policy aims to reduce dependence on China, the economic incentives for engaging with China's $50 trillion financial market remain compelling. However, the reputational and compliance costs are no longer abstract—they are tangible, as evidenced by the CATL case and the broader regulatory crackdowns.

For U.S. banks, the path forward may involve a recalibration of their China strategies. JPMorgan's contingency plans for a potential exit from China, akin to its response to the 2022 Russian sanctions, suggest a shift toward risk mitigation. Similarly, UBS Group AG's 50% reduction in mainland China investment-banking headcount since 2019 highlights the sector's growing caution.

In conclusion, the underwriting of Chinese tech IPOs is no longer a straightforward financial decision. It is a geopolitical gamble, where the stakes extend beyond profit margins to national security, human rights, and institutional credibility. For investors, the lesson is clear: in an era of escalating U.S.-China tensions, strategic patience and regulatory vigilance are as valuable as market access.