A Christmas Gift from m88 bonus CSRC - thoughts on m88 bonus CSRC Rules Regarding Overseas Listings

m88 bonus second half of 2021 was an extraordinary time for Chinese companies seeking to list overseas, as well as for om88 bonusr relevant market participants. m88 bonus Didi incident furm88 bonusr deepened m88 bonus anxiety and "mistrust" by US securities regulators on m88 bonus risks associated with investing in China-based companies or that have most of m88 bonusir operations in China. m88 bonus long-lasting battle between m88 bonus US and Chinese securities regulators regarding m88 bonus inspection of an issuer's accounting firm’s working papers, variable interest structures (VIE) and cybersecurity reviews, has drawnunprecedentedattention and wide concern.

Since July, m88 bonusre have been few new China-based companies’ IPO cases in US stocks, and m88 bonus share price of Chinese stocks has plummeted. m88 bonusre have been rumors in overseas media regarding m88 bonus "blocking" of overseas listings of VIE structures and a return to m88 bonus "road pass" era, when substantial examinations and procedures from m88 bonus China Securities Regulatory Commission ("CSRC") were required beforehand.

On December 24, m88 bonus CSRC promulgated m88 bonus Administrative Provisions of m88 bonus State Council on m88 bonus Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comment) and m88 bonus Administrative Measures for m88 bonus Record-filing of m88 bonus Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comment) (collectively, m88 bonus "Draft Rules for Overseas Listing") for public comment. On Christmas Eve, m88 bonus CSRC has sent a "Christmas gift" to those enterprises planning to list overseas and om88 bonusr market participants, bringing some warmth to m88 bonus market during m88 bonusse cold winter nights.

We would like to share some preliminary observations on some of m88 bonus key issues involved in m88 bonus draft overseas listing rules.

1.Stabilizing Market Confidence

In its interpretation of m88 bonus Draft Rules for Overseas Listing and an online Q&A with reporters, CSRC mentioned that "m88 bonus CSRC and m88 bonus relevant authorities respect enterprises' independent choice of listing place in accordance with laws and regulations and have never wavered. Looking to m88 bonus future, m88 bonus direction of expanding opening-up will not change, and m88 bonus attitude of supporting enterprises to make good use of m88 bonusse two resources will not change. Improving m88 bonus regulatory system for overseas listing does not mean tightening m88 bonus regulatory policy for overseas listing. We will continue to seek development through opening-up and promote development through regulation, maintain smooth overseas financing channels, provide clear, transparent and operable rules for overseas listing activities of enterprises, and build a more stable and predictable institutional environment."

m88 bonus above comments are aimed at m88 bonus previous concerns and worries of m88 bonus market, which can be seen as a reassuring ray of hope.

2.Is m88 bonus Overseas Listing of VIE Structured Companies Still Feasible?

m88 bonus Draft Rules for Overseas Listing points out that " Indirect overseas offering and listing by domestic companies refers to such securities offering and listing in an overseas market made in m88 bonus name of an offshore entity, but based on m88 bonus underlying equity, assets, earnings or om88 bonusr similar rights of a domestic company which operates its main business domestically. Specific criteria shall be prescribed by m88 bonus securities regulatory agency under m88 bonus State Council "

We understand that m88 bonus above statement includes VIE structure enterprises in m88 bonus filing scope, and m88 bonus CSRC spokesperson said in response to a reporter's question: "On m88 bonus premise of complying with domestic laws and regulations, a VIE structure enterprise that meets m88 bonus compliance requirements may be listed overseas after filing.As listed in m88 bonus Rules, "where listing and financing are expressly prohibited by m88 bonus laws and regulations of m88 bonus State and m88 bonus relevant provisions" shall not be issued and listed overseas, m88 bonus author holds that such provisions shall not be broadly interpreted as forbidding m88 bonus listing of enterprises with a variable interest structure but shall be interpreted as circumstances subject to specific provisions, such as a certain type of education.

However, m88 bonus Rules also emphasize that domestic enterprises' offshore offerings and listings must comply with laws and regulations, as well as m88 bonus requirements of m88 bonus laws, regulations and rules on foreign investment, and must not disrupt m88 bonus domestic market order or damage m88 bonus legal rights and interests of domestic investors and public interests. It not only eliminates m88 bonus concerns of VIE structure enterprises, but also demarcates m88 bonus "compliance with foreign investment laws and regulations".

3.What does "domestic" mean in relation to m88 bonus indirect listing of a domestic enterprise?

According to Article 3 of m88 bonus Draft Rules for Overseas Listing, m88 bonus determination as to whem88 bonusr a domestic company is indirectly offering and listing securities in an overseas market shall be made on a substance over form basis. If m88 bonus issuer meets m88 bonus following conditions, m88 bonus offering and listing shall be determined as an indirect overseas offering and listing by a domestic company:

l m88 bonus operating income, total profits, total assets or net assets of m88 bonus domestic enterprise in m88 bonus latest accounting year account for more than 50% of m88 bonus relevant data in m88 bonus issuer's audited consolidated financial statements for m88 bonus same period;

l Most of m88 bonus senior officers in charge of business operations and management are Chinese citizens or have habitual residences within m88 bonus territory of China, and m88 bonus main business operations are located within m88 bonus territory of China or carried out mainly within m88 bonus territory of China.

m88 bonus above clarifies m88 bonus meaning of "domestic". It furm88 bonusr clarifies that a considerable part of m88 bonus income of some companies is not derived from China and that shareholdings by domestic natural persons or companies of less than 50% is still considered as being Chinese shares. But it is not yet clear whem88 bonusr both criteria need to be met to qualify as “domestic” or if eim88 bonusr criteria is sufficient.

4.Is m88 bonus filing required beforehand? Can it be revoked?

Taking m88 bonus US listing as an example, we tend to believe that a domestic enterprise is obligated to file with m88 bonus CSRC within three working daysafterm88 bonus first submission. m88 bonusrefore, taking m88 bonus rules literally, it seems to us that filing is not required beforehand. However, m88 bonus Rules also grant m88 bonus power to suspend, terminate and revoke m88 bonus filing; that is, "m88 bonus CSRC and m88 bonus relevant authorities of m88 bonus State Council have m88 bonus power to require domestic enterprises to suspend or terminate overseas offering and listing, and m88 bonus securities regulatory authorities of m88 bonus State Council may revoke m88 bonus filing if it has completed m88 bonus filing." m88 bonus standards for suspending, terminating, or revoking m88 bonus filing are, in our opinion, relatively clear and predictable.

It remains to be seen whem88 bonusr "filing" is a substantive examination. After all, in m88 bonus era of "no-objection letters" in red chips and om88 bonusr CSRC rules, similar expressions may be quite different in practice to m88 bonus term "filing".

However, we noticed in m88 bonus Q&A that "except for certain industries, m88 bonus CSRC will establish a regulatory coordination mechanism with m88 bonus authorities of relevant industries and sectors in China to strengm88 bonusn policy convergence, information sharing and regulatory coordination, and will not require enterprises to obtain "road passes" from multiple authorities to reduce m88 bonus regulatory burden of enterprises as much as possible." m88 bonusse and om88 bonusr statements reflect m88 bonus basic principle and direction of "streamlining administration, delegating powers, and improving regulation and services".

5.To be furm88 bonusr clarified

m88 bonus concept of m88 bonus "grandfam88 bonusring principle" needs furm88 bonusr clarification. As m88 bonus Draft Overseas Listing Rules propose, m88 bonus “grandfam88 bonusring principle" will apply. In m88 bonus CSRC Q&A sections, it explains that “First, we will start applying m88 bonus filing requirements to new offerings and listings. Only new initial public offerings and refinancing by existent overseas listed Chinese companies will be required to go through m88 bonus filing process; om88 bonusr existent overseas listed companies will be allowed a sufficient transition period to complete m88 bonusir filing procedures”. We will follow up on how m88 bonus “grandfam88 bonusring principle” will be applied in practice.

A letter of regulatory opinions shall be provided at m88 bonus time of record-filing, and a "letter of regulatory opinions" (if applicable) means that m88 bonus timeframe for obtaining m88 bonus letter of regulatory opinions is advanced. Whem88 bonusr a regulatory opinion letter is required and m88 bonus criteria needed to judge whem88 bonusr a regulatory opinion letter is applicable still needs clarification. Previously, US securities regulators did not require a regulatory opinion letter.

Domestic legal opinion has also become an essential requirement for regulatory filing. What is m88 bonus format of a domestic legal opinion? How much of m88 bonus substantial opinions shall be included?

Of course, m88 bonusre are still quite a few details to be clarified.

6.Sino-US Transnational Audit Accounting Working Paper

According to m88 bonus CSRC response, it is achievable to follow m88 bonus principles of "reciprocity" and "prior consent". This provides space for furm88 bonusr consultation between Chinese and US regulators on audit working papers and gives reassurance to market practitioners of China-based companies.

“Overseas securities regulatory authorities conducting investigation and evidence collection on overseas issuance and listing, and related activities of domestic enterprises may request m88 bonus securities regulatory authority under m88 bonus State Council for assistance in m88 bonus investigation under m88 bonus cross-border regulatory cooperation mechanism; m88 bonus securities regulatory authority under m88 bonus State Council may provide necessary assistance in accordance with m88 bonus law. Domestic entities and individuals that provide relevant documents and materials in accordance with m88 bonus requirements of overseas securities regulatory authorities for investigation and evidence collection shall report to m88 bonus securities regulatory authority under m88 bonus State Council and may provide such documents and materials only after obtaining m88 bonus consent of m88 bonus securities regulatory authority under m88 bonus State Council and m88 bonus relevant competent authorities under m88 bonus State Council.”