Hong Kong Will Not Be Exempt from China’s New Rules for Overseas IPOs

According to the China Securities Regulatory Commission, the nation’s new rules on overseas IPOs will also apply to Hong Kong. This means that Chinese companies looking to list in Hong Kong, outside mainland China, will not be exempt.

During a media session, Shen Bing, director-general of the international affairs department at the CSRC, explained how the draft rules apply. Shen stated that the rules would not only apply to Chinese companies looking to offer H-shares in Hong Kong, but also a “red chips” category. Previously, “red chips” did not require approval from the Commission. H-shares are issued by mainland China companies that trade in Hong Kong. Meanwhile, red chips are Hong Kong-trade shares of companies that do most of their business within the mainland but are incorporated outside mainland China.

China-US Tensions

There is a decline in Chinese companies looking to list in the US, an effort embarked on by 60 companies in April 2021. Since last year, the Chinese government adjusted how domestic companies generate funds beyond its borders via stock offerings. One of the reasons for this is the mounting tensions between China and the US, with national security being at the forefront. The CSRC and China’s top executive body – the State Council, posted more comprehensive draft rules concerning international IPOs. The rules stated that the CSRC would take up to 20 working days to respond to an overseas filing request. 

The draft rules also further stated some instances where it would veto overseas listings. The veto would apply when other governments see the offering as a national security threat when the owner of the company’s major assets is unclear, and if an executive or controlling shareholder committed a criminal offense within the last three years.

The United States government has acknowledged the strained relationship with China and is taking precautionary measures on its own end. Recently, Washington moved to limit the exposure of US investors to Chinese stock allegedly linked to China’s military.

Amid the China and Hong Kong Overseas IPO Rules, CSRC Maintains that It Welcomes Foreign Direct Investments

Despite the Hong Kong rules for overseas IPOs, the CSRC says it is not stopping Chinese companies from listing overseas. In fact, the regulatory body asserted that it looked to open China’s market up further for foreign direct investment opportunities. As Shen put it:

“Overseas listing is one part of the opening up regime, so I think [that] in itself would also be our priority.”

However, many foreigners may not necessarily be eager to invest in Chinese IPOs. This may be because of the recent track record of some notable ventures. A typical example of this would be the sudden suspension of Ant Group’s IPO. News of the Alibaba affiliate’s suspension came shortly before the planned listing in Shanghai and Hong Kong. At the time, Ant Group’s listing was on course to set a new record.