China’s securities regulator has toned down curbs on local companies seeking initial public offerings overseas just as the economic rebound sparks renewed interest in the country’s assets.
In the final rules published Friday, the China Securities Regulatory Commission said it would support the listing of firms with so-called variable interest entity structures if they are compliant, signaling a softening stance toward the country’s capital markets.
The CSRC reiterated that Chinese companies seeking to sell shares abroad would have to register with the regulator after a transition period. Firms would need to abide by China’s rules when disclosing personal data, and take necessary steps to safeguard state secrets. The regulator will block listings that may impede state security or involve companies or shareholders that have committed corruption, bribes or are under investigation.
“As long as companies stay compliant with the regulations, their listings won’t be affected no matter which market they choose,” the CSRC said in an separate Q&A on its website. “The CSRC and related authorities will respect companies’ independent choice and provide support.”
The move could help revive a path for Chinese companies and investors to tap global public markets again. Chinese companies have struggled to list in New York amid tightening scrutiny at home and from the US Securities and Exchange Commission. That triggered the sharpest drop in venture capital investments in more than two decades.
“It’s clear that CSRC likes to send the message that it will carefully balance the overseas listing and domestic listing of Chinese companies going forward,” said Winston Ma, adjunct professor of NYU Law School and author of “The Digital War - How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace.”
The country’s crackdown on its internet sector ensnared giants from Ant Group Co. to Didi Global Inc. The SEC demanded in August 2021 that Chinese companies provide better disclosure of political and regulatory risks following Didi’s plan to delist from New York less than a year after going public.
The support for so-called VIEs meanwhile is significant as they have enabled Chinese companies to bypass rules on foreign investment in sensitive sectors, including the Internet industry. Through the structures, a Chinese firm can transfer profits to an offshore entity with shares that foreign investors can then own.
The IPOs of companies with the VIE structure could still be tricky even with the softening tone, given that the CSRC needs to seek opinions of “related supervisory agencies” first, Ma noted. How the ministry of commerce, as the enforcement agency for foreign investment-related laws will participate in the IPO review process “remains to be seen.”
President Xi Jinping has been looking for ways to control the vast reams of data held by China’s tech giants, in part to secure the Communist Party’s control over the economy. Under rules that took effect in February last year, China’s internet platform operators holding personal data of more than 1 million users must apply for security checks before overseas applications to list.
Domestic Deals
As part of China’s push to ease listings in the domestic market, the CSRC also announced it was getting rid of its IPO and merger review committees and wouldn’t put limits on the size or price of IPOs. The consideration of any IPO, financing or M&A applications that the CSRC was already reviewing will be taken over by the Shanghai and Shenzhen stock exchanges from February 20 to March 3. The bourses will then accept new applications from March 4, according to separate statements.
The rules come just as recent policy shifts prompt renewed interest in China assets. The relaxation of Covid controls and fresh support for the embattled property sector have led to a surge in Chinese stocks and bonds in recent weeks. An exchange-traded fund that tracks China shares has jumped 6.5% this year.
The rules could revive a wave of IPOs after China firms start to sell shares again.
A company providing digital adult learning services is set to be the first from the nation to list in the US this year, testing investor appetite after Beijing tightened oversight over its online education sector.
Meanwhile, Black Sesame Technologies Inc., a developer of artificial intelligence chips and systems for cars, is considering a Hong Kong deal that could raise about $200 million, according to people familiar with the matter. Tencent Holdings Ltd.-backed WeDoctor plans to file for an IPO by the end of April in either the US or Hong Kong.
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