China strengthens control of IPOs of its companies abroad

The Chinese government will require that domestic companies in sectors closed to foreign direct investment, such as Internet news and publications, receive clearance from regulators before they can list their shares outside of mainland China.

The National Development and Reform Commission (CNDR) announced the new authorization rules on Monday in a statement that also included an updated annual “Negative List of Foreign Investment” that lists the business sectors in which foreign direct investment is prohibited or restricted. .

The new rules now apply that list to companies seeking to go public abroad and come as China is tightening scrutiny on overseas stock sales.

Chinese companies in sectors prohibited from foreign investment “must obtain authorization from the relevant Chinese regulatory bodies if they wish to sell shares and list on foreign markets,” the NDRC said, closing a regulatory loophole.

Furthermore, “foreign investors must not participate in the operation and management of companies” and their participation must be limited to 30%, in line with the rules that regulate companies listed on local stock exchanges.

The latest negative list includes prohibited sectors such as compulsory education institutions, news organizations, and rare earth minerals. In addition, foreign investment is restricted in sectors such as publishing, nuclear power plants and telecommunications.

The NDRC’s statement comes days after the Chinese securities regulator published a draft of rules that requires companies wishing to list abroad to submit reports to ensure they comply with Chinese laws and regulations.

“China is studying how to allow companies in sectors closed to foreign investment to be listed abroad under certain conditions, expanding investment channels for foreign investors,” said China’s Ministry of Commerce.

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