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China has said domestic companies should be licensed before they can register abroad if they work in areas where they are not allowed for foreign investors, closing down the way for foreign experts to raise funds in the U.S. without overseeing the home.
The National Development and Reform Commission, the state finance regulator, said Monday that local businesses in areas with foreign economic restrictions should now get approval from “appropriate” government departments before they can make government funding abroad.
He said foreign investors would face up to 30 percent of their Chinese corporate finances if they registered, and would be banned from operating and supervising them.
“The days of free listing are over,” said Li Chengdong, Dolphin’s founder, a Beijing consultant, who said “agreement with the Chinese government should be necessary for local companies to sell shares abroad.”
The NDRC said Chinese companies in the affected areas could continue to raise funds from other countries and that the new law “created a more efficient operating environment.” [these firms] writing abroad ”.
Foreign investors are not allowed to invest in other parts of China, such as online companies, but have been using complex rules of variable interest entities (VIEs) to bypass such barriers and raise foreign exchange.
The move comes at a time of crisis for many Chinese startups and follows the announcement of Didi Chuxing’s flagship program earlier this month to do just that. delist from the New York Stock Exchange, having progressed with its own US IPO in June although Beijing opposes data security.
This saga not only led to the sudden demise of Chinese professional groups registered in the US and paved the way for future developments in companies created as VIEs.
Investors and experts say the new policy has reduced fears that VIEs could be banned, keeping the main source of revenue for China.
Li said the move underscores Beijing’s efforts to attract foreign investment while firmly holding on to areas that it seems are more important.
“The government wants to stop Didi from doing so, but wants to provide financial support for the New York City fund, as they are the ones who need the money to make new Chinese products.”
Some were very cautious about what the reforms would mean in practice. One of Beijing’s top secret funders in Beijing said he accepted the new law because it made things “clear” but added that it was not known whether the IPOs of companies had initially rejected the registration permit.
“There is no clear indication of what the lights will do,” he said. “This worries us a lot.”
Additional reports by Ryan McMorrow
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