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China Puts VIE-Structured Overseas Listings under Regulatory Spotlight
Chinese regulators have recently provided responses to the market’s concern that China will crack down on overseas listings of Chinese businesses on a variable interest entities (“VIE”) structure. On December 24, 2021, the China Securities Regulatory Commission (“CSRC”) released for public comments Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) and Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Draft Rules”). The Draft Rules, if declared into effect, will implement a new regulatory framework requiring Chinese businesses to file with CSRC when pursuing overseas listings. Three days later, China’s National Development and Reform Commission (“NDRC”) and the Ministry of Commerce promulgated Special Administrative Measures (Negative List) for the Access of Foreign Investment (2021 Version), effective as of January 1, 2022 (the “Negative List”). The Negative List for the first time declares China’s jurisdiction over (and detailed regulatory requirements on) overseas listings made by Chinese businesses in the so-called “Prohibited Industries”, in which China prohibits foreign investment. The intended scope of such jurisdiction was further clarified by NDRC officials on a press conference held on January 18, 2022. The Draft Rules and the Negative List (with NDRC’s subsequent clarification), taken as a whole, indicate the latest attitude of Chinese regulators towards VIE-structured overseas listings of Chinese businesses in the Negative-Listed industries, consisting of the Prohibited Industries and the so-called “Restricted Industries” (where foreign ownership is permitted at certain percentages).