Strong IPO lineup on US bourses

Most of the companies that came under short-sellers' attack landed in the US market through reverse mergers -- acquiring a shell company in the listing country and assuming its stock rights. This backdoor listing path provides companies with a cheap alternative to an otherwise expensive initial public offering process subjecting firms to regulator's close scrutiny.

The opaque listing approach and fraud that emerged in 2011 have also implicated international accounting firms operating in China. The US Securities and Exchange Commission has brought cases against Chinese affiliates of PricewaterhouseCoopers, KPMG, Ernst & Young and Deloitte for alleged misreporting.

These auditors are caught up in a broader legal conflict between China and the SEC wants accounting firms to submit auditing paperwork to help identify inconsistencies in financial reports of listed companies. Yet doing so could risk revealing sensitive information as Chinese law prohibits unauthorized cross-border transfer of auditing papers.

The exodus of China-based high-tech and Internet firms to seek financing on American shores over the last three years highlights a quandary for domestic bourses. The Chinese stock market is yet to foster a supportive environment for emerging start-ups.

Hu Ruyin, an economist with the Shanghai Stock Exchange, said that Chinese regulators have put too much emphasis on a company's earning ability while largely ignoring a company's compliance in financial reporting when reviewing potential candidates for an IPO.

"If evaluated mostly on their ability to generate profit, few emerging firms stand a chance to pass the IPO screening. Only large companies can qualify," Hu said.

Domestic investors have largely missed the rally of emerging growth companies listed on the other side of the Pacific. Meanwhile, an anemic domestic stock market repeatedly battered by weak economic indicators in the first two quarters and a liquidity crunch in June is anything but ready to meet the fundraising needs of newcomers.

China has put companies' IPO on hold in its domestic stock markets for more than a year, with around 700 firms left in the IPO pipeline. The suspension, imposed by regulators to shore up an underperforming stock market, has forced a flurry of companies to raise capital overseas. Another two Chinese Internet companies, Shenzhen-based online lottery site 500wan.com and mobile app developer Sungy Mobile, have also filed plans for IPO with the SEC.

Yet these will probably pale in the presence of Alibaba. The Chinese e-commerce giant plans to raise $15 billion on a stock market outside the Chinese mainland next year, with the potential to unseat Facebook as the largest Internet IPO ever.

Analysts say many smaller firms are now scrambling to float their shares before Alibaba comes in and steals their thunder.