China proposes stricter rules but no ban on offshore listings

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The Chinese securities watchdog on Friday proposed to tighten the rules governing the listing of Chinese companies abroad, which it said would improve supervision while allowing them to continue to do so, the latest in a series of regulatory measures taken by Beijing in 2021.

The draft rules, eagerly awaited by investors and published by the China Securities Regulatory Commission on its website, extend the CSRC’s oversight of offshore listings to Chinese companies with variable interest entity structures (VIE ).

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There had been a lot of uncertainty among Chinese investors and companies about the tightening of the new rules.

“China is tightening the screws on offshore quotes but not completely closing the floodgates,” Andrew Collier, chief executive of Orient Capital Research, said of the plans.

The CSRC said existing rules governing offshore listings were outdated and the proposed news reflected China’s desire to open up more and was “not about policy tightening.”

Previously, the regulator only reviewed companies incorporated onshore in China that offered offshore listing, such as in Hong Kong.

Beijing unleashed a wave of regulatory tightening this year under President Xi Jinping, including cracking down on anti-competitive behavior, banning private lesson groups and curbing real estate developers’ debt spree in a sweeping campaign that rocked domestic markets and global.

VIEs have primarily been used by companies listed on offshore stock markets, primarily in the United States, to circumvent Chinese rules restricting foreign investment in sensitive industries such as media and telecommunications.

Most of the overseas listed Chinese tech companies, including Alibaba Group Holdings and JD.com Inc, use the structures, which give them more flexibility to raise capital, while bypassing the scrutiny process and the long IPO verification process for locally incorporated companies. .

“The real key is how much data to keep, the location of the servers and whether the United States or China is responsible for the bookkeeping,” Collier said.

The CSRC said the proposed registration process is expected to take up to 20 business days if adequate documents are submitted.

It will also require international banks that subscribe to the offshore listing of a Chinese company to register with the CSRC.

Overseas IPOs have provided an alternative source of capital for Chinese companies, and a listing in New York has been seen as a badge of honor for many.

But Beijing has stepped up oversight of overseas listings since the $ 4.4 billion initial public offering (IPO) by ride-sharing giant Didi Global Inc, and Friday’s proposals were not as tough as some. had planned.


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