China tightens rules for companies listing abroad after crackdown

China plans to tighten rules for overseas listings for the country’s fast-growing start-ups as part of a months-long regulatory campaign to reign in the tech sector.

Under the proposed guidelines, companies hoping to sell shares abroad would be required to register with the country’s securities regulator, which would review their listing plans and co-ordinate with other agencies to ensure they complied with Chinese laws, such as on data security.

The proposals would empower authorities to block companies from listing overseas if they thought the share sales would threaten national security and would also ban companies from holding international share offerings if they had internal disputes or other unsettled issues.

The new measures, which are contained in a consultation paper from the China Securities and Regulatory Commission, follow months of policy uncertainty for overseas-listed Chinese groups that has weighed on their share prices. One main index tracking Chinese groups listed in the US is down 45 per cent this year.

China’s tech sector crackdown has decimated the value of a half dozen education companies listed in New York while the country’s biggest ride-hailing company Didi was forced to announce its delisting from US markets this month after unprecedented government pressure.

Meanwhile, US authorities have also outlined tighter disclosure demands for Chinese companies coming to New York.

Few Chinese tech companies have listed in either New York or Hong Kong since regulators launched a data security investigation into Didi this year.

“Overall the tone is milder than we expected so I’m quite relieved,” said Ming Liao of Prospect Avenue Capital. “With clear rules in place, IPOs can slowly restart,” he said.

The rules from the securities regulator clarify that Chinese companies structured as variable interest entities (VIEs) that were legally compliant could list abroad after registering.

VIEs are legal structures that have been used for two decades by Chinese tech groups — including industry leaders Alibaba and Tencent — to circumvent the country’s strict foreign investment restrictions and take in billions of dollars from international investors.

The FT previously reported that Chinese ministries are drawing up a blacklist to restrict foreign investors from using VIE structures to access sensitive sectors.

The securities regulator said it would seek to approve companies’ listing plans within 20 business days but might need additional time for feedback from other ministries.

“This [policy] is meant to support companies using overseas capital markets to raise money in a compliant and law-abiding manner,” the regulator said in a statement.

The regulator said it would “do its best to lighten the burden of regulation”.

The rules would apply to Chinese companies selling shares for the first time as well as those using special purpose acquisition companies to access overseas capital markets or doing secondary offerings.