How China’s New Offshore Listing Rules Will Work

People walk past the China Securities Regulatory Commission (CSRC) sign at its building on the Financial Street in Beijing, on July 9, 2021. Tingshu Wang/Reuters

HONG KONG—Two Chinese regulators announced draft rules for Chinese firms’ offshore listings over the past week, providing some clarity on how they plan to scrutinize capital market activities amid a broader regulatory crackdown.

New Rules for Offshore Listing

The China Securities and Regulatory Commission (CSRC) on Dec. 24 proposed tightening rules governing Chinese companies listing abroad, which it said would improve oversight.

The new rules will target companies incorporated offshore using a structure known as Variable Interest Entities (VIE). Previously, the regulator would only examine firms incorporated in China and wanting to do an offshore listing.

Under the proposed rules, an offshore IPO applicant will have to submit materials including its prospectus and opinions from industry regulators, if applicable, to the CSRC within three workdays after it submits offshore application documents or makes the first overseas announcement of the planned deal.

The CSRC will make a decision on whether the candidate can go ahead with their offshore listing plan or needs clearance from other relevant regulatory bodies within 20 working days if adequate materials are submitted.

International banks that underwrite a Chinese firm’s offshore listing will also be required to register with the securities regulator under the new rules.

China’s state planner the National Development and Reform Commission (NDRC) separately said on Monday Chinese companies in sectors off-limits to foreign direct investment, such as internet news and publishing, will require clearances from regulators before they can list their shares outside the mainland.

More to Come

CSRC has given market participants until Jan. 23 to send their feedback on the draft rules.

Another Chinese regulator, the Cyberspace Administration of China (CAC), published draft rules on a cybersecurity review of certain companies seeking offshore listings in mid-November.

The CAC completed its consultation by Dec. 13 and is expected to publish final rules soon.

Offshore Listing Regime To Be Clarified

Both the CSRC and NDRC guidelines are draft rules. There are some expectations that the final rules will be announced by the middle of 2022.

There is no clarity on whether there will be a single point of regulatory contact for offshore IPO-bound companies.

Also, a State Council statement last week said it will set up a coordinated regulatory board among different government bodies to vet offshore listing plans, but it is unclear how the board will look, how it will work, or which department will have the authority to lead the decision-making process.

CSRC said the rules will not apply retroactively but it remains unclear whether companies that have filed for listings but haven’t been listed will fall under the new rules, law firm JunHe said in a Dec. 25 note.

It is also unclear which and how many regulators’ opinions a company might need before submitting their CSRC filings, or under what conditions a company should seek opinions from those regulators, the law firm said.

The draft rules also did not state clearly whether Hong Kong is considered an offshore listing venue, although bankers and lawyers are expecting Hong Kong to be put under the offshore listing regime.

Potential Impact on Chinese Companies’ Offshore Listing

China-based law firm Han Kun said in a note that regulators at the listing venue will likely view CSRC clearance as a condition for the approval of the offshore listing, which may affect the timing of listings.

Bankers have said the new rules will provide transparency to listing prospects and will incentivize them to turn to public markets, especially firms in the technology and media sectors that were at the center of a regulatory crackdown this year.

By Kane Wu and Xie Yu