Immediately After the Didi Chuxing Incident... China to Strengthen Regulatory Review for Overseas Listings

[Asia Economy Reporter Seulgina Jo] "The era when Chinese companies freely listed overseas is over."

China has mandated that domestic companies in sectors where foreign investment is prohibited must undergo mandatory prior review if they plan to list overseas. Foreign investors' ownership stakes cannot exceed 30%, and participation in operations and management is also prohibited.

According to major foreign media including Bloomberg, the National Development and Reform Commission (NDRC) of China announced these regulations on the 27th (local time). This move came just days after the China Securities Regulatory Commission (CSRC) proposed that listings posing national security threats should be banned and that domestic companies must register with authorities in advance if they plan additional overseas stock sales.

Accordingly, starting January 1 next year, Chinese companies in sectors where foreign investment is banned?such as internet, publishing, nuclear power plants, and telecommunications?must undergo official review before listing overseas. Additionally, foreign investors in Chinese companies are prohibited from participating in management. The total foreign ownership must be less than 30%, and no single investor may exceed 10%. However, Chinese companies that have already completed overseas listings are exempt from the new regulations.

The NDRC maintains that Chinese companies in relevant sectors can still raise capital overseas, but the path for Chinese companies to list abroad will inevitably be blocked in the future. Lee Chengdong, founder of the Beijing-based consulting firm Dolphin, said, "The era of freely listing overseas is over," adding, "This will be decisive for Chinese companies selling shares abroad."

Until now, foreign investment in certain sectors was blocked in China, but variable interest entities (VIEs), which circumvent this by allowing overseas listings and capital raising, have been tolerated. VIEs refer to entities that do not have equity relationships with the company but exercise management rights through contracts. Authorities have not banned overseas listings by Chinese companies using VIEs, provided they comply with Chinese laws.

However, major foreign media have pointed to the case of Didi Chuxing, which entered the New York Stock Exchange under pressure from the Chinese government but announced delisting just six months later on the 3rd, describing it as "a sudden end to the boom of Chinese tech companies listing in the U.S." and stating that "a shadow has been cast over the future of VIE companies."

A private equity official based in Beijing expressed concern, saying, "The biggest worry is the uncertainty about what the listing review criteria will be," and voiced apprehension about how this measure will proceed in the future. Sha Hailong, a lawyer at the Beijing-based Sunlun Law Firm, predicted, "Chinese companies have faced no obstacles to overseas listings until now," adding, "Facing strict reviews, overseas listings will become much more difficult."

This content was produced with the assistance of AI translation services.