Why Wall Street Banks Are Avoiding Chery’s $1.5 Billion Hong Kong IPO: Geopolitics and Risk in a Divided World

The Chinese automotive giant Chery Automobile is preparing to tap Hong Kong’s capital markets with a $1.5 billion IPO—a move that would typically attract Wall Street’s top banks. Instead, the likes of JPMorgan, Goldman Sachs, and Morgan Stanley are reportedly stepping back. What’s behind this reluctance? The answer lies in a perfect storm of geopolitical tensions, regulatory risks, and shifting investor priorities in an era of U.S.-China financial decoupling.

The Geopolitical Minefield

Wall Street’s retreat from Chery’s IPO underscores a broader trend: U.S. financial institutions are increasingly wary of underwriting Chinese firms amid congressional scrutiny and fears of reputational damage. Key drivers include:
- Congressional Pushback: The House Select Committee on the Chinese Communist Party, led by Rep. John Moolenaar, has targeted banks involved in underwriting Chinese firms linked to military or human rights issues. Moolenaar’s 2022 pressure on JPMorgan and Bank of America to withdraw from CATL’s Hong Kong IPO—due to CATL’s inclusion on the Pentagon’s “military-industrial complex” list—set a precedent. Similar concerns could apply to Chery, given its status as a state-backed automaker.
- America First Policies: The Trump-era directive to avoid investments in Chinese firms with military ties, while not an official executive order, has shaped agency actions. The SEC and DOJ now demand stricter due diligence on Chinese listings, raising costs and risks for underwriters.

Legal Risks and Forced Labor Concerns

The Uyghur Forced Labor Prevention Act and Foreign Agents Registration Act (FARA) loom large over any U.S. involvement in Chery’s IPO.
- Supply Chain Scrutiny: If Chery’s battery suppliers or raw material sources intersect with Xinjiang—where the XPCC (a U.S.-sanctioned entity) operates—U.S. banks could face allegations of supporting forced labor. A 2023 Congressional Research Service report noted that 80% of global polysilicon production, critical for EV batteries, originates in Xinjiang.
- FARA Compliance: Moolenaar’s CATL precedent warned banks that underwriting Chinese firms with state ties could violate FARA, which requires disclosure of acting on behalf of foreign governments. Chery’s close relationship with the Chinese state—its founder is a former state-owned enterprise executive—raises red flags.

Market and Disclosure Challenges

Chery’s reliance on Hong Kong’s Variable Interest Entity (VIE) structure further complicates matters.
- Opaque Ownership: VIEs, which allow foreign investors to participate in Chinese firms despite regulatory restrictions, have drawn fire for obscuring equity control. A 2023 bipartisan Senate bill (the TACKER Act) would ban U.S. investments in VIE-structured firms until they meet stricter disclosure rules.
- Erosion of U.S. Manufacturing: Chery’s IPO could deepen U.S. reliance on Chinese auto manufacturing—a red line for lawmakers like Sen. Marco Rubio, who has condemned CATL’s U.S. partnerships as undermining domestic industries.

Chery’s Strategic Weaknesses

Even without geopolitical headwinds, Chery’s business model poses risks.
- NEV Transition Lag: While BYD and Tesla dominate the global EV market, Chery derives only 25% of its sales from NEVs, per 2023 data. Its reliance on gasoline vehicles leaves it vulnerable to China’s regulatory push to phase out internal combustion engines.
- Domestic Focus: Chery’s underwriters—China International Capital Corp and GF Securities—are a strategic choice to avoid U.S. scrutiny. Yet this limits global investor access, potentially diluting the IPO’s pricing power.

The Broader Trend: Wall Street’s Dilemma

The avoidance of Chery’s IPO reflects a systemic shift. Since 2020, U.S. banks have underwritten only 12% of Chinese firms’ Hong Kong listings, down from 45% in 2018, per Dealogic data. Meanwhile, Hong Kong’s IPO market has raised over $6 billion since September 2023, but 80% of deals avoided U.S. underwriters entirely.

Conclusion

Wall Street’s retreat from Chery’s IPO is a microcosm of the U.S.-China financial divide. With congressional pressure, forced labor risks, and opaque structures combining to create a “no-win” scenario for banks, Chery’s reliance on domestic underwriters signals a strategic retreat to safer shores. For investors, the writing is on the wall: in a world of geopolitical fragmentation, firms like Chery—caught between state ties and regulatory risk—face a steep uphill battle to attract global capital.

The numbers speak clearly: since 2020, Chinese firms’ U.S.-listed stocks have underperformed the S&P 500 by 34%, while Hong Kong IPOs with U.S. underwriters saw 20% lower average pricing than those without. As Chery proceeds without Wall Street, it bets on a future where geopolitical lines are drawn—and capital flows accordingly.