Ultimate magazine theme for WordPress.

China’s offshore listing rules should reduce market uncertainty

HONG KONG, Dec 25 (Reuters) – China’s plan to tighten oversight of offshore stock sales by mainland companies should help ease regulatory uncertainty that has shaken financial markets this year, according to bankers and analysts. Has brought quotations to a standstill.

The China Securities and Regulatory Commission (CSRC) released a draft rule late Friday requiring companies seeking offshore listing to file under a framework to ensure they are complying with Chinese laws and regulations.

Companies that use a so-called Variable Interest Entity (VIE) structure are still allowed to search offshore listings as long as they comply with the regulations.

Register now for FREE unlimited access to Reuters.com

to register

The rules remove uncertainty for investors who feared that authorities would block offshore listings of VIE structured companies in order to fill a regulatory loophole.

VIE is a structure adopted by most of the overseas-listed Chinese tech companies like Alibaba and JD.com in order to bypass Chinese restrictions on foreign investment in certain sectors.

Businesses and investors should rest assured that the filing-based system will also include close coordination between CSRC and various industry regulators, such as the cyberspace watchdog.

“The publication of the draft rules shows that major communication barriers between the various regulators have been removed,” said Ming Jin, managing partner of the Chinese boutique investment bank Cygnus Equity.

“Now we’re going to see how regulators do it and how US regulators react.”

Reactions to the new rules will be seen on Monday when the US stock market resumes trading after the Christmas break, which included Friday. Hong Kong stocks will start trading again on Tuesday.

“Overall, it is a good sign that more clarity has been achieved,” said a banker for a Wall Street firm in Hong Kong, who declined to identify him because he is not allowed to speak to the media.

The success of the rules would depend on their implementation, he said.

Winston Ma, associate professor at NYU Law School, said the issue of cross-border data security has become critical in the global digital economy and is a major reason for the new rules.

“As such, the proposed new rule requires the cybersecurity review to be completed prior to the CSRC  -proval process,” said Ma.

Uncertainty about the future of VIE structures, coupled with regulatory crackdowns in a number of key sectors in China, had dampened the value of mainland companies’ listings in offshore markets.

Chinese firms raised $ 12.8 billion in the United States, but the value of the deals stalled after Didi Global Inc (DIDI.N) was listed in July, sparking significant backlash from authorities.

In Hong Kong, the value of its IPOs fell from $ 32.1 billion to $ 26.7 billion in 2021, according to Refinitiv.

A public consultation on the draft rules will remain open until 23 January.

Register now for FREE unlimited access to Reuters.com

to register

Reporting by Kane Wu, Julie Zhu, Samuel Shen. Writing by Scott Murdoch Editing by Robert Birsel

Our Standards: The Thomson Reuters Trust Principles.

Comments are closed.