One of the hot topics regarding the economic tension between the United States and China is the initial public offerings (IPOs) of Chinese companies in the United States and the regulation of them when both parties “make muscle” in relation to the issue and restrict the issues in different ways. Over the past six months the flow of initial public offerings has dried up and many details are unclear to companies wishing to issue in international markets.
Over the weekend, the Chinese Regulatory Commission (CSRC) released draft regulations for public comment regarding IPOs by Chinese companies. The draft includes five chapters with 28 sections, with the final date for public comments being January 23rd. Under the new regulations that tighten the requirements and make it harder for new issues, every Chinese company is required to first register with the committee and then meet a number of committee requirements.
In addition, IPO processes abroad will stop if the authorities see this as a threat to national security. Local companies need to withstand relevant investigations in the field of overseas investment, cyber and data. More of the regulations: Prohibition on holding more than 30% by foreign investors and no more than 10% by a single investor. Another significant restriction will require the issuing banks to also register with the Chinese Committee, which will probably make finding such a bank more challenging as the banks will have difficulty meeting Chinese requirements.
Despite the tightening of requirements and a certain lack of clarity, they also cause a sigh of relief in the corridors of companies that want to issue on Wall Street as they come after weeks of speculation that China will completely ban the issuance of companies abroad. The Chinese will not be banned.
The regulations are not explained to every consumer and it is difficult to understand what they mean and how they will be enforced, especially in light of the fact that there are several bodies in China that are involved in overseeing such moves. “Enforcement details still need clarification, especially the oversight of regulators in other government offices in addition to the CRSC,” said Winston Ma, a law professor at New York University. For example, the person who caused Didi’s company
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Beginning with deletion processes from trade in the United States was not the CSRC but another body responsible for cyber in China.
As a reminder, the cooperative travel company was issued to great acclaim in the United States and raised $ 4 billion worth over $ 70 billion, only to find out a few days later that the Chinese authorities banned the app from adding new customers and it was deleted from the app stores. The company then announced its intention to withdraw from trading in the United States and trade only in Hong Kong. In order to save American investors’ money, US authorities have tightened the scrutiny they conduct for Chinese companies that submit billions of dollars to markets in the United States.
On the other hand, China is also announcing today a easing of its relations with foreign investors, with regard to their holdings in Chinese companies. Until now, foreign investors have been banned from taking full ownership of Chinese passenger car manufacturing plants. From the first of January in the coming year this prohibition will be removed. In the list of regulations for 2021 published today by the Ministry of Trade and the Committee for Development and National Reforms, this prohibition is absent, compared with the corresponding list last year, when even then the committee announced its intention to make such a change.
The list still includes 33 areas where foreign investment is prohibited or restricted, including rare minerals, the film industry and tobacco products. In other industries such as medical services foreign entities are required to be part of a partnership with local partners, if they want to invest in the field, usually in a minority position.
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