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Beijing Tells Law Firms to Scale Back China Risks in IPO Docs

The China Securities Regulatory Commission reportedly met legal chiefs and told them to avoid downbeat descriptions of the country’s business environment

Law firms in China have heeded a request to tone down the language used to describe 'China risks' in IPO application documents, but some say the move could provoke queries from the US regulator.
A Chinese national flag flutters outside the China Securities Regulatory Commission building on Financial Street in Beijing. Photo: Reuters.


Beijing has asked law firms to tone down negative descriptions of China’s policies, or its business and legal environment, in companies’ listing prospectuses ahead of IPOs, sources claim.

They’ve been warned failure to do so could cost them the regulatory green light for the IPOs, three people familiar with the matter said.

The move, which not been reported before, is the latest in tightening scrutiny of Chinese companies’ offshore listings, and comes at a time when Beijing is stepping up controls over cross-border transfer of sensitive information.

The China Securities Regulatory Commission (CSRC) on July 20 met with local lawyers and asked them to refrain from downbeat descriptions of China’s business environment, it’s claimed.


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The closed-door meeting followed informal, so-called window guidance the regulator had offered on the subject to firms that work on listing applications over the past few months, the three sources said.

Chinese companies planning overseas share offerings would typically list changes in China’s changing economic, political and social conditions as well as changes in government policies and regulations and trade tensions with the United States among business risks, their public disclosures showed.

The Chinese law firms acting as IPO advisors have been asked to drop such boilerplate risk disclosures, said one of the people, who declined to be identified as the discussions were confidential.

The latest guidance could force Chinese companies to delay or even put on hold their share offerings in the United States, since regulators there require full risk disclosure, two of the people said.

China’s new offshore listing rules that came into effect on March 31 forbid any comments in the listing documents that “misrepresent or disparage laws and policies, [the] business environment and judicial situation” of China.

However, the rules do not specify what would qualify as such comments.

All major markets require issuers to disclose to prospective investors risks related to the company itself, its business sector, and the country where it is headquartered in.

The China-specific risk statements in prospectuses prepared after March 31 caught the attention of some senior leaders in Beijing, prompting the CSRC to reiterate its stance on the subject to dealmakers, one of the sources said.

CSRC told law firms at the meeting last week not to sign off any offshore share offering disclosures, which included statements that maliciously distorted or derogated China’s laws, policies and regulatory environment, according to the three sources.

The CSRC did not immediately respond to a faxed request for comment.


Regulators Warn on Green Lights for IPOs

In its earlier “window guidance” to dealmakers, the regulator hinted that failure to comply with it might cost them and issuers a regulatory green light for listings, two of the sources said.

Representatives from the CSRC’s International Cooperation Department, more than 10 Chinese law firms and other government and industry bodies attended the July 20 meeting, according to one of the people.

Large domestic law firms Fangda Partners, Han Kun Law Office and Zhong Lun Law Firm were among the attendees, said two of the sources.

The latest steps come as Beijing is scrambling to revive the world’s second-largest economy that has started to rapidly lose momentum in recent months following the initial post-Covid bounce.

Many foreign companies have also expressed concerns over the changing business environment, which in recent years has been marked by a crackdown on technology firms and consultancies, as well as new anti-espionage and data security laws.

The new rules on overseas listings and data transfers have already made it harder to secure timely approvals and led to calls for Beijing to reconsider its approach.


  • Reuters with additional editing by Sean O’Meara


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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.


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