Beijing has tightened the rules on overseas listings by Chinese firms in a series of new regulations that increase scrutiny of companies seeking to raise funds on foreign stock markets.
China has stepped up scrutiny of major overseas listings after a controversial New York initial public offering (IPO) by ride-hailing giant Didi Chuxing (滴滴出行) went ahead this year, despite regulatory concerns at home.
In the latest measure to increase oversight, Chinese authorities on Monday said that companies in industries where foreign investment is banned — due to a “negative list” — would have to seek approval from authorities for an overseas debut.
Overseas investors’ total ownership would be capped at 30 percent, while a single investor should hold no more than 10 percent, according to the updated list of restrictions on foreign ownership, which takes effect from next month.
Foreign investors are “not allowed to participate in the operations and management” of the company, a joint statement by the Chinese Ministry of Commerce and the National Development and Reform Commission said.
It came days after authorities proposed that companies seeking foreign IPOs would need to register with the securities regulator.
The listing would be blocked if it was considered a threat to national security.
Some of China’s biggest firms have listed on US stock markets in search of more developed markets and fresh lines of cash from a massive investor base, but enthusiasm has wavered amid soaring tensions between Beijing and Washington.
Beijing has also launched a wide-ranging regulatory crackdown over the past year to curb runaway growth in China’s powerful Internet sector and rein in the influence of big businesses.
In the wake of Didi’s New York listing, authorities shocked investors by launching investigations into the company over cybersecurity — before they ordered it be removed from app stores, and extended probes into other US-listed Chinese companies.
This month, Didi said that it would delist from the New York Stock Exchange, shortly after US regulators adopted a rule that would allow them to remove foreign firms.
The Chinese government has been encouraging companies to list on domestic exchanges, to keep information and data from heading overseas and to develop the country’s capital markets.
The latest regulatory moves stop short of a ban on offshore structures known as variable interest entities (VIE) — structures which allowed tech giants such as Alibaba Group Holding Ltd (阿里巴巴) and Tencent Holdings Ltd (騰訊) to avoid restrictions on foreign investment and listings abroad.
The restrictions would make VIE structures “less attractive,” as well as “making foreign listings less appealing for Chinese founders and investors,” University of Hong Kong law professor Angela Zhang (張湖月) said.
The rule would not affect companies listed overseas.
Regulators had suggested that companies with at least 1 million users undergo a cybersecurity review before going public abroad.
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