China formalizes rules for overseas IPOs

BEIJING — Companies based in China now have a clearer picture of whether they can register overseas in the United States

China’s Securities Regulatory Commission announced new rules late Friday that require domestic companies to comply with national security measures and personal data protection law before going public overseas.

Securities regulator rules do not prohibit the variable interest entity structure commonly used by Chinese companies when listing in the United States. The VIE structure creates a listing through a shell company, often based in the Cayman Islands.

The CSRC said its rules for overseas listings are set to come into effect on March 31. The rules are similar to a draft released in late 2021, which 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 overseas listings.

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.

Over the past two years, different parts of the Chinese government have announced new rules to protect national security and personal data.

Notably, after Didi’s massive U.S. IPO in June 2021, China’s cybersecurity regulator said internet platform operators with personal data of more than 1 million users must seek review. cybersecurity before you can register abroad.

After an 18-month lull in overseas listings, more China-based companies are returning to the U.S. IPO market this year. Last year, US inspectors also said they were able to review audit working papers of US-listed Chinese companies, significantly reducing the risk of debarment.