New overseas listing rules being prepared

China will step up efforts to unveil new rules to establish a unified registration system for overseas listings, a key step to help domestic firms enter global capital markets in a well-regulated manner, officials and experts say.

Experts said the new rules, likely to take effect this year, will help China build a clearer and streamlined regulatory framework for overseas listings and pave the way for smoother audit supervision collaboration between China and the United States.

Fang Xinghai, vice-chairman of the China Securities Regulatory Commission, said at the China International Finance Annual Forum 2022 in Beijing on Sept 2 that the regulator will push forward legislative procedures for the new overseas listing rules and make preparations for supporting rules and the systemic framing of related regulations.

The commission, China’s top securities regulator, issued a set of draft rules for overseas listings of Chinese firms in December. The regulations require domestic companies seeking overseas listings, directly or indirectly, to submit materials to the regulator regarding key compliance issues for registration.

Some analysts expect the new rules could be adopted as early as the end of this year, which will significantly reduce regulatory uncertainties and better facilitate overseas listings of Chinese firms as market activities have been dampened by a China-U.S. auditing dispute.

Ren Zeyu, an associate professor at the China University of Political Science and Law in Beijing, said he expects the country to unveil the new rules by the end of this year, given the necessity of shaping stable market expectations and the preparations made by recent regulatory improvements.

The new rules are expected to provide clear and specified requirements for the auditing and data management of overseas-listed, China-based issuers, and with this, Chinese companies will be able to make financing decisions more easily, Ren said.

China and the U.S. signed an agreement on bilateral auditing oversight collaboration on Aug 26. The deal is seen as a major step toward ultimately resolving the auditing dispute over U.S.-listed Chinese companies, which have been under the threat of forced exit from the U.S. market since the U.S. Holding Foreign Companies Accountable Act became law in late 2020.

Fang, the commission official, said the Chinese securities regulator will implement the ChinaU.S. audit cooperation deal accordingly and will keep fostering a predictable regulatory environment that is beneficial to China’s high-level openingup of its capital market.

Dai Guanchun, a capital markets lawyer in Beijing, said the new rules may help change the situation that China-based companies with different ownership structures face various domestic regulations of overseas listings and therefore improve the efficiency of Chinese companies seeking overseas floats.

While the rules may not be directly aimed at resolving the China-U.S. audit dispute, they may set the stage for closer audit regulatory collaboration, he said.

“If the audit supervision issues surrounding U.S.-listed Chinese companies are to be totally solved, it would be necessary for China and the U.S. to update their securities regulatory collaboration framework. This would in turn require a more complete Chinese regulatory system for local companies’ overseas listings.”

While there are still uncertainties surrounding ChinaU.S. audit cooperation, China remains committed to further opening its financial sector and capital markets.

The securities regulator is pushing forward to expand the Stock Connect programs between Hong Kong and mainland stock exchanges by including qualified Hong Kong listed foreign companies in the programs, Fang said.

This arrangement will allow mainland investors to buy shares of foreign companies through the stock connect programs.

In addition, the commission will support Hong Kong in launching futures trading of central government bonds and will further open the onshore market of government bond futures, Fang said.

“If the audit supervision issues surrounding U.S.-listed Chinese companies are to be totally solved, it would be necessary for China and the U.S. to update their securities regulatory collaboration framework.”

DAI GUANCHUN