Under the new rules, a host of government authorities would
become involved in approving applicants looking to raise capital
via the popular VIE route, said Winston Ma, an adjunct professor
at NYU Law School.
So-called variable interest entity (VIE) structures are
common among overseas-listed Chinese technology companies such
as Alibaba Group Holding Ltd and JD.com Inc as they enable companies to skirt Chinese restrictions on
foreign investment in certain sectors.
Other agencies that could get involved in the VIE approval
process include the National Development and Reform Commission,
which supervises foreign ownership in Chinese companies, the
Cyberspace Administration of China (CAC) and industry-specific
regulators, said Ma.
The involvement of more regulators beyond the CSRC could
also lead to more uncertainty around approval as some agencies
could have different priorities such as national security or
data protection, bankers said.
The CSRC did not immediately respond to a Reuters request
for comment.
NEW YORK OR CHINA?
New York for decades had been a lucrative listing venue for Chinese companies attracted to its deep liquidity and the prestige of a share sale in the world's largest economy. That all but ground to a standstill after mid-2021 when ride-hailing company Didi Global pressed on with an IPO despite being urged by Chinese authorities to put the deal on hold, prompting a regulatory backlash and Didi to delist from the U.S. market. Last year, U.S. listings of Chinese firms were worth less than $230 million, according to Refinitiv data, a massive drop from $12.9 billion in 2021.
Enacted in the wake of the Didi debacle, current rules also require companies with data of more than 1 million customers to undergo a review by the CAC before they can sell shares overseas. Wilson Yu, a private equity investor in a startup working on software for intelligent driving, said the startup is now seeking a domestic listing instead of New York which had been under consideration earlier. "I don't think an overseas listing for the start-up would get the Chinese regulatory nod due to data security. China doesn't want data-sensitive companies to list overseas," he said. Despite the prospect of more red tape, however, some advisers note that the guidelines are clear and are preferable to the regulatory uncertainty that has prevailed since mid-2021. "Requiring approvals from more regulators is an extra burden companies will comply with as there is relatively clear guidance from the Chinese regulators in terms of the qualifications to be listed," said Frank Bi, a partner at law firm Ashurst. (Reporting by Scott Murdoch in Sydney, Samuel Shen in Shanghai and Selena Li in Hong Kong; Editing by Sumeet Chatterjee and Edwina Gibbs)
