Shares debuted at 17 Hong Kong dollars ($2.17), but rapidly fell around 6 percent by start of trading in Hong Kong.
Xiaomi's shares dipped in early trading, hitting HK$16 in mid-morning trade, down almost 6% from the HK$17 they had been sold at.
Founded in 2010 by entrepreneur Lei Jun (雷軍), Xiaomi has grown from a start-up in Zhongguancun - China's "Silicon Valley" - to become the world's fourth-biggest smartphone vendor at the end of past year, International Data Corp said.
Despite being one of the most anticipated Chinese technology IPOs this year, Xiaomi saw a disappointing valuation of US$54 billion, well below its ambitious US$100 billion target.
Traders will be able to bet on further declines by shorting the stock on its first day of trading, according to the Hong Kong exchange operator. It later expanded into computers, TVs and home appliances.
So why did Xiaomi's IPO flop?
Xiaomi has also faced questions from analysts over its ability to increase profit margins in the future, given that much of its smartphone sales are at the lower end of the market.
The HK$17 price valued the company at 39.6 times its forecast 2018 earnings, while iPhone maker Apple is trading at 16 times and Chinese social media and gaming giant Tencent Holdings at 36.
The listing comes at a delicate time for Hong Kong's stock market, with the benchmark index hitting a nine-month low last week as investors fret over escalating trade tensions between the United States and China.
On Monday, the Xiaomi President and co-founder, Lin Bin, told to CNBC that, "I think short-term stock price is mostly dictated by market conditions".
"From day one, we've set up a dual-class share structure".
Lei has even described Xiaomi as a "new species" of company with what he describes as a "triathlon" business model combining hardware, internet and e-commerce services.
Lei Jun also said, "Without the innovation of the Hong Kong capital markets, it would be hard for us to have a chance to list publicly in Hong Kong". The company is also making waves in Europe, where after less than two years in the market, it has become the fourth biggest smartphone seller.