On 17 February 2023, the China Securities Regulatory Commission (“CSRC“) announced the “Trial Measures for the Administration of Overseas Issuance and Listing of Securities by Domestic Enterprises” (《境内企业境外发行证券和上市管理试行办法》) (the “Trial Measures“) with five supporting guidelines (the “Guidelines“). The effective date of the Trial Measures and the Guidelines are 31 March 2023. With such implementation, the following old rules and regulations will be repealed accordingly:

(i) (Notice on the Implementation of the Mandatory Provisions of Articles of Association of Companies to be Listed Overseas (《关于执行到境外上市公司章程必备条款的通知》)

(ii) The Special Regulations on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies (《国务院关于股份有限公司境外募集股份及上市的特别规定》)

(iii) Circular of the State Council on Further Strengthening the Administration of Share Issuance and Listing Abroad (《国务院关于进一步加强在境外发行股票和上市管理的通知》)

We highlight some of the major changes made by the Trial Measures, which will affect the PRC companies seeking listing overseas (including Hong Kong).

What are domestic enterprises?

According to Article 2 of the Trial Measures, domestic enterprises for overseas listing (whether by way of direct overseas listings or indirect overseas listings) are subject to the requirements under the Trial Measures. By relying on the “substance over form” principle, not only are the companies incorporated in the PRC (H-share companies) subject to the new rules, but overseas incorporated companies with principal operations[1] in the PRC, such as red-chip companies, are also subject to the new rules.

Filing requirements

To replace the CSRC approval system, under the Trial Measures both H-share companies and “red-chip” companies seeking to list overseas (including Hong Kong) need to do the requisite filings (including a filing report, a PRC legal opinion, etc.) with CSRC within three days after submission of its listing application (Article 16 of the Trial Measures). Then CSRC will review the documents and will complete the filing procedures and publish the filing results on the CSRC website within 20 working days (Article 19 of the Trial Measures). The content of the filed documents shall be truthful, accurate, and complete (Articles 12 and 20 of the Trial Measures). Otherwise, substantial penalties and fines can be imposed (Chapter V – Legal Liabilities of the Trial Measures). Therefore, CSRC still retains its general vetting power for processing the filings. 

Transitional period

According to the Notice for the Administration of Filing of Overseas Issuance and Listing of Securities by Domestic Enterprises 《关于境内企业境外发行上市备案管理安排的通知》, domestic enterprises that have been listed overseas (including Hong Kong) by or before the implementation of the Trial Measures on 31 March 2023 will not be required for the requisite filings with the CSRC. A 6-month transitional period will be granted to the PRC companies that have obtained the approval of overseas regulators or exchanges (such as passed the hearing of The Stock Exchange of Hong Kong Limited (“HKSE”)) but have not yet completed their listing. If they can complete their listing within the transitional period, they will not be required for the requisite filing with the CSRC, too.

The emphasis on national security and quality of the domestic enterprises seeking listing overseas

The Trial Measures lists the circumstances where a domestic enterprise is prohibited from offering and listing securities overseas in Article 8. For instance:

(a) National security: If the issuance and listing of securities overseas may endanger national security, it is prohibited from listing overseas. Further, certain types of PRC companies (such as internet companies) are required to go through national security review or obtain clearance from relevant authorities if necessary before making any filings with the CSRC.

(b)  Criminal offences: if a domestic enterprise, its controlling shareholders, or its de facto controller has committed a criminal offence such as corruption, bribery, embezzlement, misappropriation of property, or has undermined the order of the socialist market economy within the last three years, it is prohibited from listing overseas.

(c) Subject of investigation: if a domestic enterprise is under investigation in connection with major violation of laws and regulations, it is prohibited from listing overseas.

VIE structure

The VIE structure is permissible under the new regime so long as it is not in violation of the relevant laws and regulations in the PRC. VIE-structured companies also need to undergo the filing procedures, and they must specify the reasons and arrangements for the adoption of such structure in their filed documents[2]. Since the VIE structure often attracts a lot of attention and concerns from HKSE and the PRC authorities, it is advisable to seek legal advice about the feasibility in advance. 

Further guidance from HKSE expected

In light of the implementation of the Trial Measures, HKSE will make necessary amendments to remove the old requirements in connection with the PRC issuers and update the documentary requirements to reflect the new filing procedures under the Trial Measures. HKSE published its consultation paper on such proposed amendments to the Listing Rules in February 2023, and it is expected that more guidance will be issued by HKSE after the consultation has been completed.

PRC domestic enterprises which are seeking listing in Hong Kong should consult our team regarding the compliance with the relevant rules and regulations under the new regime.

Link to the Trial Measures (Chinese version)

Link to the consultation paper

[1] Article 15 of the Trial Measures sets out the circumstances under which a domestic enterprise is deemed as listing overseas indirectly.

[2] For the detailed requirements about the filing documentation, please refer to “Guideline No. 2 for listing overseas: Guidance on the content and format of the filing materials”《境外发行上市类第2号:备案材料内容和格式指引》