On December 24, 2021, the CSRC issued the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments, hereinafter referred to as the “Administration Provisions”) and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments, hereinafter referred to as the “Measures”), which are now open for public comments. The reporter interviewed relevant officials of the CSRC regarding the consultation.

 

1. Reporter: What is the background for improving the  regulatory system for overseas offering and listing of Chinese companies?

 

Official: Opening-up is the basic state policy of China.  In recent years, the opening-up of China’s capital markets has been steady and fast, with an increasing number of Chinese companies listed in overseas markets such as Hong Kong SAR, New York, London in direct or indirect forms. Overseas listings have played a positive role in supporting Chinese companies to utilize foreign capital, enhance corporate governance, and deeply integrate into the global economy. While Chinese companies listed overseas have greatly contributed to the economic development and social prosperity of China, both domestic and overseas investors have shared the dividends of China’s sustained and steady economic growth by investing in Chinese companies listed overseas.

 

As the opening-up of China’s capital markets continues to deepen, the initiative to improve the regulatory system for overseas listings has been proposed with the purpose of promoting the sound, sustainable and long-term development of Chinese companies listed overseas. The current legal basis for the regulation of overseas listings is the Special Provisions of the State Council Concerning the Overseas Securities Offering and Listing by Limited Stock Companies (No. 160 Order of the State Council, hereinafter referred to as the “Special Provisions”), which was formulated at the early stage of China’s capital markets and has lagged behind the demand of market development and high-level opening-up. The revised Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”) amended in December 2019 stipulates that direct or indirect overseas listings should comply with relevant provisions of the State Council. Companies, intermediaries and other relevant parties are also paying close attention to how the regulatory system for overseas listings will be improved and reformed, and are expecting the rules specifying relevant procedures and requirements to be released timely by the government in order to enhance overseas listings compliance with laws and regulations.

 

Against such backdrop, after reviewing and assessing the implementation of the Special Provisions, the CSRC, in coordination with other relevant government authorities, have extended proposals to comprehensively revise the Special Provisions and formulate new regulations of direct or indirect overseas listings, hence drafted the Administration Provisions and the supporting Measures, aiming at addressing the existing weaknesses of the system and meeting the demand of market development.

 

Moving forward, after the two rules are implemented upon completion of public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that market entities could refer to clear guidelines for filing.

 

2. Reporter: What are the purposes for improving the regulatory system for overseas listings?

 

Official: Improving the regulatory system for overseas listings is not only a pragmatic measure to expand the opening-up of the capital markets and bolster the “dual circulation” development paradigm, but also a demonstration of China’s determination to deepen the reforms to streamline administration, delegate powers and improve regulation and services.

 

First, it can meet the demand of supporting Chinese companies to raise capital in overseas markets in compliance with laws and regulations. The CSRC and relevant government authorities in China fully respect companies’ own choices for listing venues, and such attitude is consistent, clear, and unswerving. Looking ahead, neither the trend of expanding opening-up nor the attitude of supporting companies to utilize both domestic and international resources will be altered. Improving the regulatory system for overseas listings is not to  tighten up regulatory policies for overseas listings. We stay committed to seeking development through opening-up, and promoting development through improving regulation. We will strive to maintain effective channels for overseas capital-raising , and provide companies with clear, transparent and operable rules for overseas listings, and a more stable and predictable institutional environment.

 

Second, it can meet the demand of promoting an institution-based high-level opening-up. Overseas listings is an important part of the two-way opening-up of China’s capital markets, and thus overseas-listed companies should meet the requirements of high-quality development. Complying with the laws and regulations of China is the basic requirement for Chinese companies, no matter in which market they choose to be listed. In recent years, some specific overseas-listed Chinese companies have committed serious violations of laws and regulations such as accounting frauds, which have damaged the international reputation of Chinese companies and negatively impacted their overseas financing activities. Through improving the regulatory system for overseas listings, security can be better ensured while achieving development and opening-up, and the overall regulatory compliance of overseas-listed Chinese companies can be enhanced, which is conducive to allowing overseas listings to enable technological advancements and bolster the growth and international competitiveness of Chinese companies, promoting legitimate rights of global investors, and ensuring a regulated, sound and orderly development of overseas listings.

 

Third, this is in line with the reforms to streamline administration, delegate powers and improve regulation and services. Over the recent years, CSRC has been pushing forward reforms to better regulate overseas listings of Chinese companies, by streamlining application procedures and requirements, as well as substantially shortening the approval cycle. Such reforms have yielded positive results. Under the newly established filing system, CSRC will not examine whether companies meet the listing requirements and conditions of the host overseas market; nor will the CSRC conduct any such examination or investigation in disguised forms. Rather, we will strive to strengthen domestic and cross-border regulatory cooperation and hold market entities accountable for compliance with laws and regulations. We will continue to open up and invigorate the market while standardizing our regulations, in order to better regulate overseas listings of Chinese companies.

 

3. Reporter: Please introduce the implementation steps of overseas listing filings and relevant arrangements for smooth and orderly implementation, such as transition period.

Official: We will adhere to the “Grandfathering principle”, prioritize stability while pursing progress, and ensure the smooth and steady implementation of the filing system.

The institutional design is as follows: First, we will start applying the filing requirements to new offerings and listings. Only new initial public offerings and refinancing by existent overseas listed Chinese companies will be required to go through the filing process; other existent overseas listed companies will be allowed sufficient transition period to complete their filing procedures. Second, we will differentiate between initial public offering and refinancing. We have fully taken into account the efficiency of refinancing in overseas markets. Hence, different institutional arrangements have been made for refinancing in terms of filing time and filing material requirements, which will match with the normal practices of overseas markets and reduce the impact on financing activities of overseas listed companies.

 

4. Reporter: Please introduce the main filing process for overseas listings.

Official: The CSRC’s filing system will focus on compliance issues of domestic companies, while the filing procedures and material requirements will be based on necessity and rationality. The filing process is expected to be more efficient than the current administrative approval process, so as to reduce excessive burden on companies. According to the filing requirements, companies are obliged to submit compliance reports, while their intermediaries must issue necessary verification materials. The CSRC will issue filing notice within 20 working days upon receiving complete and compliant filing materials. If relevant information in the filing materials are deemed incomplete or insufficient, companies will be requested to submit supplementary materials or explanation. According to the information reflected in the materials, the CSRC may solicit opinions from relevant authorities where necessary. The solicitation time will be excluded from the filing period. Feedback of relevant authorities will be conveyed to the applicant timely.

 

5. Reporter: Please introduce considerations with respect to domestic cross-departmental regulatory coordination under the filing system.

Official: In order to successfully implement the filing system, the CSRC will work closely with other domestic regulatory authorities responsible for relevant industries and sectors in creating a regulatory coordination mechanism in order to strengthen policy coherence, information sharing and regulatory collaboration. To alleviate regulatory burdens on companies, companies will not be requested to obtain permits or approvals from various authorities.

First, where the authority of a specific industry clearly requests in its rules and regulations that a company undergo certain regulatory procedures prior to overseas listing, the company shall obtain such regulatory opinions, filing records, or approval from the authority before submitting the filing application with the CSRC. For instance, according to the “Measures for the Implementation of Administrative Licensing Matters for Chinese Commercial Banks”, Chinese commercial banks are obliged to seek approval from the banking regulatory authorities prior to overseas listings.

Second, in accordance with the Administration Provisions, the CSRC will take the lead in establishing a cross-departmental supervisory coordination mechanism for overseas listings. Upon receiving filing applications, the CSRC will proactively communicate with relevant regulatory authorities or solicit opinions to improve filing efficiency. In addition, the CSRC will support and cooperate with relevant authorities to jointly clarify the rules and regulations of certain sectors, in order to enhance policy predictability.

Last but not least, companies that fall within the scope of security reviews in accordance with relevant laws and regulations, such as foreign investment security and cyber security reviews, shall declare and undergo security review procedures before submitting filing applications.

 

6. Reporter: What are the considerations around improving cross-border cooperation in securities regulation?

Official: The highly globalized capital markets in today’s world call for closer cooperation and policy communication among regulators in different jurisdictions. Going ahead, the CSRC will further promote cross-border securities regulatory cooperation with our international counterparts. Firstly, we will enhance information sharing by establishing a filing information relaying mechanism. Secondly, we will step up cross-border enforcement cooperation and form synergies in cracking down on violations of laws and regulations such as financial fraud, so as to safeguard fairness, maintain market order, and protect the legitimate rights of global investors. Thirdly, we will proactively promote cross-border cooperation in audit supervision, so as to create a sound regulatory environment for overseas listings.

 

7. Reporter: What’s CSRC’s attitude toward overseas listings of companies with VIE structure?

Official: If complying with domestic laws and regulations, companies with VIE structure are eligible to list overseas after filing with the CSRC.