China is formalizing rules for foreign IPOs

BEIJING — China-based companies now have more clarity on whether they can list overseas in the US

The China Securities Regulatory Commission announced new rules late Friday requiring domestic companies to comply with national security measures and personal data protection law before going abroad.

Securities regulator rules do not prohibit the floating rate entity structure commonly used by Chinese companies in US listings. The VIE structure creates a listing through a shell company, often based in the Cayman Islands.

The CSRC said the rules on foreign listings will go into effect on March 31. The rules are similar to a draft published in late 2021 that had no implementation date.

The new rules also require IPO underwriters, usually international investment banks, to report annually to the CSRC on their involvement in Chinese listings abroad.

The CSRC also said companies or individuals could be fined up to 10 million yuan ($1.5 million) for sharing misleading information or otherwise breaking the rules.

In the past two years, various parts of the Chinese government have announced new rules for the protection of national security and personal data.

Particularly after Didi’s massive IPO in June 2021, China’s cybersecurity regulator said operators of internet platforms containing personal data of more than 1 million users would have to apply for a cybersecurity assessment before appearing abroad.

After an 18-month break in foreign listings, more China-based companies are returning to the US IPO market this year. Last year, US inspectors also said they could review the auditing documents of US-listed Chinese companies, significantly reducing the risk of delisting.