China tightens rules on overseas-listed companies after crackdown

China plans to tighten regulations on overseas listings for its fast-growing startups as part of a months-long regulatory campaign to dominate the tech sector.

Under the proposed guidance, companies that want to sell shares abroad would have to register with the country’s securities regulator, which will review their listing plans and coordinate with other agencies. other authorities to ensure they comply with Chinese laws, such as on data privacy.

The proposals would empower authorities to block companies from listing overseas if they deem the share sale to threaten national security and would also ban companies from holding public offerings international stocks if they have internal disputes or other unresolved issues.

The new measures, outlined in a consultation document from the China Securities and Regulatory Commission, according to months of policy uncertainty for overseas-listed Chinese corporations weighed in on their share prices. A key index that tracks Chinese-listed groups in the US is down 45% this year.

China’s crackdown on the tech sector has decimated half a dozen educational companies listed in New York, while the country’s largest ride-hailing company Didi was forced to announce its delisting from the US market in the past few days. this month after unprecedented pressure from the government.

Meanwhile, US authorities have also outlined tighter measures Disclosure request for Chinese companies to New York.

Few Chinese tech companies have listed in New York or Hong Kong since regulators opened a data security investigation into Didi this year.

“Overall, the tone was softer than we expected so I’m pretty relieved,” said Ming Liao of Prospect Avenue Capital. “With clear regulations, IPOs can restart slowly,” he said.

Rules from the securities regulator make it clear that Chinese companies structured as legally compliant variable-interest entities (VIEs) can list overseas after registration.

VIE is the legal structure that has been used by Chinese tech conglomerates – including Alibaba and Tencent – for two decades to circumvent the country’s strict foreign investment restrictions and rake in billions of dollars. from international investors.

The FT previously reported that Chinese ministries drawing up a blacklist to restrict foreign investors from using the VIE structure to access sensitive sectors.

The securities regulator said it would seek to approve the companies’ listing plans within 20 working days but may need more time for a response from other ministries.

“This [policy] aims to assist companies using overseas capital markets to raise funds in a manner that is compliant and compliant with the law,” the regulator said in a statement.

The regulator said it would “do its best to ease the regulatory burden”.

The rules will apply to Chinese companies selling shares for the first time as well as those using acquired companies with a special purpose to access foreign capital markets or perform secondary services. grant.

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