People’s Republic of China: Overseas Listing via VIE Structure Becoming Subject to CSRC Filings
By Chloe Duan and Grace Ye
As one of a series of new regulations reforming the securities offering regime by China Securities Regulatory Commission (CSRC) released in February 2023, Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the Measures) came into effect on 31 March 2023. The Measures require companies incorporated within Mainland China seeking offerings and listings of securities in overseas markets (Overseas Offering and Listing) to make filings with CSRC. The Measures are applicable to both direct listings and indirect listings (e.g., red chips, via Variable Interest Entity (VIE) structure, or via Special Purpose Acquisition Company). Hence, VIE is no longer a grey-area scheme for Chinese companies to be listed in overseas markets.
VIE structure was a structure for China-operated companies to work around foreign investment restrictions in offering securities and listing on overseas markets. It was initially created in China Sina’s listing on NASDAQ and primarily followed by other Chinese tech companies for decades. China has been trying to regulate this structure for years and has gradually promulgated various stand-alone rules, e.g., foreign exchange registration rules for founders and rules prohibiting round-trip acquisition. The Measures for the first time regulate the entire process of Overseas Offering and Listing by Chinese companies.
Under the new filing-based system introduced by the Measures, an issuer must make a filing to CSRC via its operating company in China within three business days after submission of an IPO application overseas. The Measures also require an issuer to report significant events to CSRC subsequent to listing, such as change in control, being investigated or punished by overseas securities regulator, and delisting. Coupled with the Measures, CSRC also released a series of guidelines setting out detailed requirements and forms of fillings and regulations governing state secret and archive issues related to Overseas Offering and Listing.