Hong Kong is surpassing New York and rivals London as the world's biggest market this year for initial public stock offerings, the latest indication of the growing importance of China in international finance.

But this year's banner performance for Hong Kong reflects to a considerable extent the initial public offering for Industrial & Commercial Bank of China, which is expected to raise up to $16 billion in Hong Kong and up to $6 billion in Shanghai. Add in Bank of China's $10 billion initial public offering in June, and just two deals account for more than half of Hong Kong's volume this year.

Like two pigs moving through a python, the deals are producing bulges in Hong Kong's totals this year, but next year is expected to be somewhat leaner.

"It's not obvious as to what the next $10 billion trade is, but having said that, we continue to think that there will be meaningful IPO volume coming from the mainland," said Gokul Laroia, a managing director at Morgan Stanley and its head of global capital markets in Asia.

According to Thomson Financial, $40 billion worth of initial public offerings were placed on London exchanges so far this year, while $30 billion in IPOs were sold in New York. Hong Kong has had $17 billion to $24 billion, even without up to $16 billion from ICBC.

Long lines of individual investors have shown up in Hong Kong to grab prospectuses for Industrial & Commercial Bank of China's initial public offering, while institutional investors have swamped the bank's underwriters with orders.

But looking beyond Industrial & Commercial Bank of China's offering, which would be the world's largest, investment bankers see no similar-size deals coming out of China for a long time to come.

A veritable great wall of smaller deals is pouring out of China instead.

UBS, Goldman Sachs and other investment banks all say they have many deals in the pipeline for next year. UBS officials said they had only 8 to 10 pending deals at this time last year but were now working on two dozen stock offerings of Chinese companies slated to raise a total of $9.2 billion next year.

"There is no evidence that the flow is drying up in any way, shape or form," said Steven Barg, UBS's head of equity capital markets for Asia.

He predicted that initial public offerings would be seen for Chinese companies involved in consumer goods, power, insurance, diversified industrial activities, mining, steel, real estate, retailing, telecommunications and transportation.

Yet the total sum of money raised through initial public offerings in Hong Kong could still fall by as much as a third next year, from as much as $40 billion this year, bankers said. Laroia predicted that it could take three to five years to match this year's peak in dollar terms.

Senior executives at the biggest investment banks said that they saw no need to cut jobs in Hong Kong or Shanghai, because smaller deals often require almost as much work as large deals. Investment banks' fees also tend to be larger for deals under $1 billion, running around 3 percent of the money raised, compared with less than 2 percent for very large deals like that of Industrial & Commercial Bank of China.

"We have a very healthy backlog and we feel pretty good about the breadth of that backlog," which includes listings in China's domestic market and the listing of Chinese companies on international markets, said David Ryan, a managing director at Goldman Sachs who is co- head of its finance group in Asia except for Japan. "People feel like they're going to be working pretty hard."

But Laroia cautioned that "the total volume of fees, given the total volume of activity, will be lower."

A lingering question now for investment bankers is whether investors' appetite for Chinese stocks will flag after many have stuffed their portfolios with Chinese bank stocks over the past year.

Industrial & Commercial Bank of China is China's biggest bank, and its market value after the initial public offering is likely to play a sizable role in stock indexes for Asia and especially for Hong Kong. That prospect has led some investors to buy the stocks if they do not want their results to diverge too far from the results of those indexes.

Romeo Dator, the portfolio manager of the U.S. Global China Region Opportunity Fund, based in San Antonio, Texas, said he had little choice in buying shares in the banks because of their likely role in the indexes. But Dator said he would carefully select among future share offerings based on the strength of each company, because no company going on the market in the year ahead is likely to play a large role by itself even in Hong Kong indexes.

"Since we're done with the big banks," he said, "I don't think we'll see the same level of demand."

But many investment bankers disagree, saying that a minority of the investment in Chinese stocks these days comes from fund managers or individuals who are comparing themselves to Chinese or Asian indexes.

Global hedge funds and private equity funds have been opening or expanding their offices in Hong Kong at a rapid pace, contributing to soaring rents for office space and apartments. Oil- producing countries have been putting large portions of their new wealth into Asia, in contrast with their heavy investments in the United States and Europe when oil prices were high in the 1970s.

"That capital is looking eastward, not westward," said Mark Renton, a managing director with Citigroup and its head of investment banking in Asia.

With the exception of Chinese technology companies listing on Nasdaq, so as to be traded on the same market as many comparable companies from around the world, most Chinese companies have preferred to stay closer to home with listings in Hong Kong or occasionally Shanghai. Some investment bankers attribute that strategy to Chinese wariness of the Sarbanes-Oxley requirements on corporate governance in the United States.

But others say Chinese companies are not venturing to New York or London in appreciable numbers simply because the world's financiers are coming to Asia instead - and bringing their wallets with them.

"ICBC," Renton said, "is able to access the capital markets without resorting to an overseas listing because the pools of capital have moved."

Courtesy of The New York Times