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China Securities Watchdog Set to Vet All Offshore Listings

Under new rules that take effect from March 31, and end decades of unregulated overseas IPOs by Chinese companies, the CSRC will vet all new IPOs on foreign markets

China Securities Regulatory Commission (CSRC) building in Beijing
China Securities Regulatory Commission (CSRC) building in Beijing. Photo: Reuters


China’s securities watchdog has revived hopes of Chinese firms that want to list on foreign markets.

Chinese companies that want to list offshore will have to submit proposals to the securities watchdog, according to new rules will which take affect next month.

The move, which comes at a time of heightened bilateral tensions with the United States, could also be an indication of concern about the economic slump that China endured last year, with the growth of just 3%.

The China Securities Regulatory Commission published trial rules on Friday to regulate offshore listings, after a regulatory freeze imposed in July 2021.

The CSRC’s rules, which take effect from March 31, are designed to guide companies wanting to access liquid capital markets.

That includes in the United States after Beijing and Washington solved their long-standing audit dispute in December, lessening the risk of US delisting for Chinese companies.


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New filing system for overseas IPOs

“Offshore listing is a key component of China’s capital markets opening,” the CSRC said in a statement.

It said the rules showed China was pursuing “its direction of opening up” in spite of growing uncertainty in the world and that companies will be able to choose listing venues freely as long as they abide by the law.

Under its new filing system that effectively ends decades of unregulated overseas IPOs by Chinese companies, the CSRC will vet offshore listings.

“With clearer guidelines and less uncertainties, I believe Chinese companies are still inclined to list overseas… geopolitical concerns notwithstanding,” Daniel Tu, founder of Active Creation Capital, said.

Law firm Wilson Sonsini’s senior partner Weiheng Chen said the CSRC and other relevant regulators have the “ultimate gatekeeping power” and can stop any overseas listings that are not compliant or against national or public interests.


Massive drop in US listings


Chinese companies raised nearly $230 million in US listings in 2022, according to Refinitiv data, a massive drop from $12.85 billion a year earlier.

Chinese offshore listings ground to a halt after Didi Global‘s New York listing on June 30, 2021 that triggered Beijing’s regulatory backlash over data security concerns. It was delisted in June last year.

China’s tech crackdown also contributed to a near freeze in overseas listings by Chinese companies.

But the decision to allow overseas listings, together with the reduced US risk, has made dealmakers hopeful that Chinese companies will reignite their ambitions to list in major markets such as New York.

On December 15, the US accounting watchdog said it had full access to inspect and investigate firms in China for the first time, countering the risk that around 200 Chinese companies could be kicked off US stock exchanges.

The CSRC said on Friday that companies in sensitive sectors should also undergo data security reviews, or obtain clearance from relevant authorities before filing for foreign listings.

It also said it would strengthen cooperation with overseas regulators to crack down on misbehaviours such as accounting fraud and book-cooking.


VIE Structure

The new rules grant the CSRC oversight of offshore listings to Chinese firms with variable interest entity (VIE) structures.

VIE is a structure adopted by most overseas-listed Chinese tech companies, such as Alibaba and JD.com, to skirt Chinese restrictions on foreign investment in certain sectors.

The CSRC said on Friday it would allow filings by VIE-structured companies that comply with rules, and support companies’ capital raising both at home and abroad.

Winston Ma, an adjunct professor at NYU Law School, said that at least a handful of Chinese authorities – in addition to the CSRC – have become relevant in regulating VIE listings, as the securities regulator will seek the opinions of “related supervisory agencies.”

The list includes Ministry of Finance and regulator of data-intensive industries Cyberspace Administration of China, he said.

One of the major changes from a draft rule issued in December 2021 is that the final version clarifies the criteria for the indirect overseas listing – which includes VIE structure – to avoid excess scrutiny, according to the CSRC.

The new rule stipulates that only when an issuer has more than 50% of its revenue, profit, and asset generated in China, and at the same time the principal place of business is in China and the majority of the management are Chinese, its listing is subject to the new rule.

The scope is smaller from that stipulated in the earlier draft.


  • Reuters with additional editing by Jim Pollard





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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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