China Will Make Overseas IPO Rules For Domestic Firms Stricter But Won’t Impose A Blanket Ban

China intends to stiffen rules for Chinese firms seeking to get publicly listed overseas, but it would not prohibit them from trading in other countries entirely.

The Chinese securities regulator recommended that any company seeking to go public in a foreign country must first get registered with the agency and then complete a list of government-imposed standards.

“Domestic enterprises issuing and listing overseas shall strictly abide by laws, regulations and relevant provisions on national security such as foreign investment, cybersecurity and data security, and earnestly fulfill the obligations of national security protection,” the China Securities Regulatory Commission said in its proposal.

Chinese companies may be barred from making foreign initial public offerings if regulators perceive them to be a threat to national security, and firms may be forced to transfer some assets “to remove or avoid the impact of abroad issuance and listing on national security,” according to the document.

The draft guidelines, which will be up for public comment until late January, come after weeks of conjecture about how and when China might strengthen its oversight of initial public offerings. 

Washington has also passed audit requirements that could hurt Chinese companies, indicating that relations between the two countries are still high.

According to a report published in the Financial Times earlier this month, the country plans to “strictly limit” the ability of firms that utilise a structure known as a variable interest entity, or VIE, to raise money from overseas investors.

A VIE is a foreign holding company that allows investors to own an interest in a Chinese firm that would be tough to do otherwise due to mainland regulations. Chiense e-commerce and tech  Alibaba, Pinduoduo , and JD.com all have profited from the arrangement. 

VIEs are not mentioned in the draught rules. However, a representative for the agency said in a statement that companies using that structure would still be permitted to get publicly listed overseas as long as they followed government requirements and registered with the regulator.

Even though China is not completely shutting down international listings, it has taken a number of moves this year that appear to be aimed at discouraging Chinese firms from trading in global markets, which the government thinks could pose a threat to national security.

When the authorities blocked Didi from app stores only days after its IPO on the New York Stock Exchange in June, it became a poster child for Beijing’s tech repression.

Didi was charged by authorities at the time of violating privacy rules and constituting a cybersecurity risk. Their actions were largely interpreted as retaliation for the decision of the company to go public outside of China rather than in China. 

Beijing proposed in the weeks following the IPO that firms that handle data of more than 1 million users should obtain regulatory approval before getting listed on foreign exchanges.

Beijing isn’t the only one putting pressure on the US. The US Securities and Exchange Commission (SEC) announced guidelines earlier this month that will empower it to delist international companies that refuse to reveal their books to US regulators. For years, China has refused US audits of its companies, citing national security concerns.

(Adapted from CTVNews.com)



Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Uncategorized

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