China formalizes rules for overseas IPOs

China formalizes rules for overseas IPOs

  • The China Securities Regulatory Commission late Friday announced new rules requiring domestic companies to comply with national security measures and personal data protection laws before going public overseas.
  • The CSRC said its foreign listing rules are scheduled to come into effect on March 31.
  • The rules do not prohibit the variable interest entity structure used by Chinese companies when listing in the United States

Headquarters of the Chinese securities regulator in Beijing.

Visual China Group | Getty Images

BEIJING – China-based companies now have more clarity on whether they can list overseas in the US

The China Securities Regulatory Commission late Friday announced new rules requiring domestic companies to comply with national security measures and the Personal Information Protection Law before going public overseas.

The Securities Commission’s rules do not prohibit the variable interest entity structure that Chinese companies use when listing in the United States. The VIE structure creates a public listing through a shell company, often based in the Cayman Islands.

The CSRC said its rules for overseas listings are scheduled to come into effect on March 31. The rules are similar to a draft published in late 2021 that had no implementation date.

The new rules also require IPO underwriters, typically international investment banks, to report their involvement in overseas Chinese listings to the CSRC annually.

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The CSRC also said companies or individuals could be fined up to 10 million yuan ($1.5 million) if they provide misleading information or otherwise break the rules.

Over the past two years, various parts of the Chinese government have announced new rules to protect national security and personal data.

Notably, after Didi’s massive US IPO in June 2021, China’s cybersecurity regulator said internet platform operators with personal data of more than 1 million users would have to apply for a cybersecurity review before they could be listed overseas.

More China-based companies are returning to the US IPO market this year after an 18-month lull in overseas listings. Last year, US inspectors also said they were able to review the audit working papers of US-listed Chinese companies, significantly reducing the risk of a delisting.