Beijing’s displeasure over the listing of DDT in the U.S. has been sparked by a week of major moves by the Chinese government to rectify and issue fines against DDT through the Internet Information Office and the city regulator. The latest news shows that the Securities and Exchange Commission is studying the establishment of a special agency to fully review the plans of Chinese companies to list overseas. Meanwhile, the U.S. investment ban on Chinese military-related companies is about to take effect, and major international indices have announced the removal of dozens of Chinese companies.
More difficult for Chinese companies to “go abroad”? Rumor has it that future approval will be required through the Securities and Exchange Commission
Reuters on July 8 cited several insiders with knowledge of China’s regulatory authorities as confirming that the China Securities Regulatory Commission (CSRC) will set up a special agency to review Chinese companies’ plans to list overseas, putting the initiative for Chinese companies to “go abroad” firmly in the hands of the government.
On July 6, China’s State Council issued a notice to tighten regulation of Chinese stocks and said it would revise the rules governing the listing of Chinese companies abroad.
The news of these tighter controls on Chinese companies comes on the heels of Drip’s June 30 IPO in the United States. Analysis suggests that Beijing is highly unhappy with Drip’s move to go public.
In the past, Chinese companies going public overseas have mostly used the “Variable Interest Entities (VIE)” rules to first complete their corporate identity transformation. For example, Alibaba, Baidu, Beyoncé, Li Ning and other companies have chosen to register in the Cayman Islands or Virgin Islands, located in the Caribbean, for the convenience of overseas listings, bypassing China’s jurisdiction or lengthy approval process.
The China Securities Regulatory Commission, which in the past did not mind where companies were registered, has changed its attitude and is now ready to review this, Reuters said, citing two sources. Under the new procedure, any company preparing to list overseas would have to get approval from the relevant Chinese regulatory ministry.
Dozens of Chinese companies removed from major international indexes after Biden’s order
Chinese companies are not only restricted at home, but are also not recognized in international financial markets.
Both the U.S. S&P Dow Jones Indices and the U.K. FTSE Russell Indexes announced that they will remove 25 and 20 Chinese companies, respectively, from their indexes in the coming days, mainly in response to an executive order signed by U.S. President Joe Biden on June 3.
The executive order places 59 Chinese companies with official ties to China on a “blacklist” that prohibits investment by U.S. individuals and institutions. Washington noted that these companies conduct surveillance outside of China and use Chinese surveillance technology to suppress human rights and create threats.
The executive order, which has a 60-day grace period and will take effect on August 2, not only prohibits U.S. individuals and investment firms and other institutions from buying or selling shares in these Chinese companies, but also requires Americans who have invested in these companies to withdraw their investments within a year.
Chinese stocks have generally fallen over the past few days due to a series of negative news. The Associated Press reports that Chinese officials are trying to calm investor concerns. The report quoted Foreign Ministry spokesman Wang Wenbin as saying that Beijing will continue to “encourage enterprises to explore global markets and strengthen international exchanges and cooperation.”