China’s securities regulator is considering tightening regulations for Chinese companies listing in overseas markets, according to sources, requiring it to review documents submitted by companies seeking to list abroad to avoid leaks of sensitive information related to national security, and companies already listed abroad could be subject to the same regulations.
Bloomberg reported on May 7 that China’s securities regulator is considering tightening regulations for Chinese companies planning to list abroad, requiring them to conduct security reviews before submitting listing documents to overseas regulators to avoid leaks of information related to national security.
One of the people familiar with the matter said that companies already listed abroad may also be subject to regulation.
These discussions are still in the preliminary stages and are subject to change, the source said. The source asked to remain anonymous because the information is not publicly available.
The China Securities Regulatory Commission responded to Bloomberg’s request for comment, saying “the news is not true.
Bloomberg reported that the U.S. and China have been at odds over the disclosure of information about listed companies. The U.S. Congress last year passed the Foreign Company Accountability Act, widely seen as targeting China, which imposes additional disclosure requirements on foreign companies listing in the U.S. and bans foreign issuers from trading their securities in the U.S. if they do not comply with relevant audit guidelines for three consecutive years. The China Securities Regulatory Commission has protested this approach.
Some investors believe the law will root out fraud, especially by overseas companies, but Carson Block, founder of Muddy Waters Research, a leading short-seller, believes that’s not the case, especially for U.S.-listed Chinese companies.
Speaking at the WSJ Risk & Compliance Forum on Wednesday (May 5), Block said many Chinese companies should be delisted from the U.S. market because the Chinese Communist Party provides protection for fraudulent behavior by these companies.
Under current Chinese regulations, locally registered companies in China need regulatory approval to list overseas, but some companies registered in places like the Cayman Islands, including tech giants like Tencent and Alibaba, are outside the scope of this regulation. It’s unclear how the new rules may affect companies under variable interest entity (VIE) structures.
Shares on the Hong Kong exchange fell after the Bloomberg report was published, at one point dropping 3.2 percent, the biggest intraday drop in more than a month.
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