The Strategist

China to tighten controls on local companies' entry into foreign exchanges

12/28/2021 - 06:31

The Chinese authorities will not ban local companies from IPOs in foreign markets through variable interest entities (VIEs), provided that they agree their intentions with state regulators, according to a statement from China's State Securities Regulatory Commission.

Earlier Bloomberg reported citing sources that Chinese authorities want to prohibit Chinese companies to conduct IPOs in foreign markets through variable interest entities (VIEs), which they use to circumvent restrictions on foreign ownership.

The VIE concept was first developed by Sina Corp and its investment banks during their IPO in 2000. This scheme helps Chinese companies circumvent foreign investment restrictions in certain sectors of the economy (the internet industry among others). VIE also allows Chinese companies to transfer profits to an offshore company registered in the Cayman Islands or the Virgin Islands, for example.

According to the regulator, companies will still be able to list on foreign stock exchanges, but they will have to go through an approval process with the State Securities Market Regulatory Committee.