BEIJING (Reuters) -China’s securities regulator proposed tightening rules governing Chinese companies listing abroad on Friday, which it said would improve oversight while allowing firms to continue to do so.
The China Securities Regulatory Commission (CSRC) said on its website that it proposed establishing a new framework for overseas listing of Chinese firms.
Overseas IPOs have provided an alternative source of capital for Chinese companies in the past and a New York listing has been seen as a badge of honor for many.
Beijing has been examining ramping up supervision of overseas listings since the $4.4 billion initial public offering (IPO) of ride-hailing giant Didi Global Inc and the proposals on Friday were not as stringent as some had expected.
Chinese firms have raised about $12.8 billion in U.S. listings in 2021, according to Refinitiv data, but the deals ground to a halt after Didi’s debut in New York in early July.
Under the draft rules, Chinese companies with so-called variable interest entity (VIE) structures are permitted to list overseas, provided that they meet compliance requirements.
VIEs are mostly used by China’s companies that list on overseas stock markets, primarily the United States, to skirt Chinese rules restricting overseas investment in sensitive industries such as media and telecommunications.
They give firms more flexibility to raise capital offshore, while also bypassing the scrutiny and lengthy IPO vetting process that locally-incorporated companies have to go through.
The CSRC said it was improving the regulatory system and was not tightening its policies, adding that the rules would not be retroactively applied and it would not consider whether firms met the requirements of overseas listing locations.
The news came as U.S. markets were closed on Friday for the Christmas holiday period.
In a VIE, a Chinese firm sets up an offshore company for an overseas listing that allows foreign investors to buy into it.
The offshore company enters into a series of contracts with the owner of the local Chinese company, which operates the business in China, to obtain 100% economic interest in that business, analysts have said previously.
Chinese IPOs on all world markets have reached a record $100 billion, Refinitiv data showed.
(Reporting by Beijing Newsroom; writing by Tom Daly and Scott Murdoch; Editing by Alexander Smith)
