I. Reporters: Please introduce the expansion of the depository receipt business under the Stock Connect scheme?

CSRC officials: The revision expanded the scope of the Stock Connect scheme to cover more domestic and overseas stock exchanges. Domestically, the scheme has been extended to cover Shenzhen Stock Exchange, allowing eligible listed companies on Shanghai Stock Exchange or Shenzhen Stock Exchange to apply to issue Global Depository Receipts (GDRs) in overseas markets recognized by the CSRC. On the overseas side, the scheme has been expanded to include stock markets in Switzerland and Germany. The CSRC is working with counterparts in the UK, Switzerland and Germany to ensure smooth roll-out of the expanded depository receipt business.

II. Reporters: What does the revised rule provide for issuers to raise capital through Chinese Depository Receipts (CDRs) ?

CSRC officials: The revision allows overseas issuers to offer CDRs on domestic stock exchanges based on newly issued underlying shares, and determine the offering price through a market-driven book-building mechanism. It also clarifies that in principle the proceeds raised shall be used for main businesses of the issuers, and that the proceeds may be remitted out of or retained for use within the Chinese Mainland.

III. Reporters: Are issuers of underlying overseas securities required to disclose the information on the difference adjustment according to Chinese Accounting Standards for Business Enterprises (hereinafter referred to as the “Chinese accounting standards”)?

CSRC officials: Issuers of underlying overseas securities that adopt accounting standards that have been determined by the Chinese Ministry of Finance to be equivalent to the Chinese accounting standards in accordance with the principle of reciprocity (hereinafter referred to as equivalent accounting standards) are not required to disclose the difference adjustment information according to Chinese accounting standards. According to relevant announcements of the Chinese Ministry of Finance ([2012] No. 65, [2020] No. 47 and [2021] No. 31), IFRS applied by listed companies in EU member states at the level of consolidated financial statements has been equivalent to the Chinese accounting standards since 1 January 2012. The IFRS applied by UK listed companies at the level of consolidated financial statements shall be considered as equivalent to the Chinese accounting standards after the end of the Brexit Transition Period. IFRS applied by issuers incorporated in Switzerland has been considered as equivalent to the Chinese accounting standards since 7 September 2021.

Issuers of underlying overseas securities whose disclosed financial reports are not prepared with equivalent accounting standards shall disclose the difference adjustment information according to the Chinese accounting standards in accordance with Article 7 of the Provisions on the Supervision and Administration of Depository Receipts under the Stock Connect Scheme between Domestic and Overseas Stock Exchange.

IV. Reporters: What improvements have been made in the information disclosure and ongoing supervision requirements for issuers of underlying overseas securities?

CSRC officials: The information disclosure and ongoing supervision requirements for issuers of underlying overseas securities are generally the same with those for overseas-listed red chip companies in the Pilot Program for Innovative Companies. In terms of annual report disclosure, issuers of underlying overseas securities are allowed to disclose their overseas annual reports in the domestic market and, in doing so, they shall disclose the main differences in their overseas annual reports compared with requirements of the Standards Concerning the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No.2—Format and Content of the Annual Report and whether such differences exert a material impact on investors’ investment decisions and engage a law firm to issue legal opinions on such differences. In terms of accounting standards, issuers of underlying overseas securities adopting equivalent accounting standards are allowed to calculate financial indicators based on the financial data compiled according to equivalent accounting standards. In terms of the obligation to disclose information related to changes in shareholding and acquisition, overseas investors holding CDRs shall fulfill such obligation according to relevant domestic laws and regulations.

V. Reporters: Are there any changes to the maximum quota of cross-border capital flow under the Stock Connect scheme?

CSRC officials: Given that there are still sufficient quotas under both eastbound and westbound businesses, the current maximum quota of cross-border capital flow under the Stock Connect scheme, which includes an eastbound aggregate quota of RMB 250 billion and a westbound aggregate quota of RMB 300 billion, remains unchanged. Securities institutions conducting cross-border conversion can hold cash and other specific classes of assets with the amount of no more than RMB 500 million in relevant markets for the purpose of shortening the conversion cycle and hedging market risk. The quotas and upper limit on the balance of the assets in relevant markets could be adjusted having regard to the operation of the Stock Connect scheme and the demands of the market.

CSRC Releases Provisions on the Supervision and Administration of Depository Receipts under the Stock Connect Scheme between Domestic and Overseas Stock Exchanges