China Issues New Rules for Overseas IPOs Effective from March 31

The China Securities Regulatory Commission (CSRC) has announced rules for local companies filing Initial Public Offerings (IPOs) overseas. The new rules give domestic companies more clarity on if they can list outside their home country. According to the CSRC, the laws binding the filing of overseas IPOs will become effective for all companies in China from March 31.

China Formalizes Laws for Overseas IPOs

Announcing the new regulations, the Commission explained that companies must observe the national security measures and personal data protection law before going public outside the country. Also, IPO underwriters are required to report their relationships with overseas Chinese IPOs to the China Securities Regulatory Commission. Anyone, whether individual or company, that violates the new instructions could pay up to a 10 million yuan fine, which equals $1.5 million. The same penalty applies to individuals and companies that share misleading information.

The new law the securities regulator passed does not affect variable interest entity (VIE) structure which is common with Chinese companies filing for public listings in the US. This VIE structure allows companies to list via a shell company, typically in the Cayman Islands.

Over time, multiple Chinese agencies have consistently provided new rules to guide and protect national security and personal data. China’s cybersecurity regulator had earlier said that internet platform operations in China with personal data of over a million users are required to apply for cybersecurity review in their home country before filing IPOs overseas. This came after Didi went live on the New York Stock Exchange (NYSE) in June 2021. The Cyberspace Administration of China (CAC) said the transport company violated data security laws, resulting in a fine of 8.026 billion ($1.19 billion). The CAC specified that Didi breached the country’s data security law, personal information protection law, and network security law. In addition, the Chinese authorities ordered the country’s app stores to delist Didi in July 2021.

Didi Survives Regulator’s Grip After 18 Months

After 18 months of suspension, Didi announced in January that it would relaunch its app. While its services were paused, the company said it “seriously” cooperated with the national network security review. It added that it was resuming upon receiving greenlight from the Network Security Review Office.

More companies in China have also resumed overseas IPOs since the year began. Henceforth, Chinese companies that comply with the new rules would not be exposed to the risk of delisting or other related consequences. US inspectors also said in 2022 that they had reviewed the audit work papers of Chinese companies that filed for overseas IPOs.