Alibaba IPO Investors In China Find Creative Ways To Get Around Government Restrictions

As investors on Wall Street and beyond line up for a piece of Alibaba's initial public offer, or IPO, on Thursday, those in China are shackled by government restrictions, which prevent Chinese investors from buying stocks outside the country.

“Chinese investors are very limited in the extent to which they can participate in the Alibaba IPO,” Anthea Yan Zhang of the Jones Graduate School of Business at Rice University told International Business Times. “It is not specific to Alibaba. The reason is the foreign currency controls imposed by the Chinese government. For ordinary investors in China, they do not have access to the offering.”

Despite these restrictions, “demand [for the stock] would be high. It is a very profitable business, it is a big business, and it is a brand that is well-known throughout China,” Zhang said.

However, the restrictions that thwart the ambitions of small-scale Chinese investors can be circumvented by those with sufficient will and money. Although Chinese investors cannot directly purchase shares overseas, the wealthiest can buy them indirectly through qualified investor programs, according to the Financial Post. And, one way that Chinese investors, big and small, have been getting in on Alibaba's IPO is by investing in related companies that Alibaba either has partnerships with, or owns a stake in.

Bloomberg reports that stocks of seven companies, which have relationships with Alibaba and are listed on stock exchanges on the mainland, have rallied 15 percent on average over the past month up to Tuesday. Financial software developer Hundsun Technologies Inc. has climbed 24 percent while China Shipping Container Lines Co., whose parent works with Alibaba on cross-border logistics, rose 19 percent. And, there are other routes for institutional investors to gain access to Alibaba's shares.

“Some brokerage firms help [investors] to set up accounts in Hong Kong, so that they can directly purchase Alibaba stock,” Dr. Teng Bing Sheng of Cheung Kong Graduate School of Business told the Wall Street Journal. “Also there are several Chinese funds set up to do exactly that [directly purchase Alibaba shares] so Chinese investors can buy shares of the fund to indirectly invest in Alibaba stock, as there is so much interest within China to get part of Alibaba."

However, enthusiasm among Chinese investors to participate in U.S. stock purchases may be limited. CNBC reports that Chinese investors have so far shown little interest in owning foreign stocks under the limited investment schemes available in China, and are more likely to channel their money into real estate.