Going Public, Chinese Style

Big-ticket IPOs in New York and Hong Kong for Chinese banks and insurance companies make headlines. But in recent years another class of Chinese company has been quietly tapping the international capital markets. Enterprises that don't have the heft or profits for a splashy initial public offering are finding they can get a coveted overseas listing through a reverse merger.

Here's how it works. The Chinese business is typically acquired by a U.S. shell company that is worthless, except for one thing: It's publicly traded. The American board then resigns, the Chinese board takes over, changes the company's name, and issues new stock to hedge funds and other new investors, raising millions of dollars in fresh capital. One example: Sinovac Biotech Ltd. (SVA ), a respected Beijing-based maker of vaccines, executed a reverse merger in 2003 and subsequently raised $12 million.