Thread by @PM_Thornton

Very smart FT article on the new rules issued by #China's Security Regulatory Commission by Craig Coben: Don't you want a VIE, baby? ft.com/content/cba55a…

Challenging the claim that the new CSRC rules are a signal “reopening the avenue of fundraising after a 20-month obstruction,” Coben rightly points out "this is less a U-turn and more a reassertion of state power."

After agreeing in Dec. to allow the US's PCAOB “complete access” to the audit papers of US-listed Chinese companies in compliance with the Holding Foreign Companies Accountable Act, the CSRC is introducing its own controls.

"Under the new rules, non-PRC companies operating primarily in #China must file with the CSRC to list offshore; companies already listed abroad now have to register with the CSRC, too."

"The CSRC announcement now means that Xi Jinping’s #Chinacoin has gone from turning a blind eye to foreign listings to placing them 'under his eye'."
However, the rules don’t ban offshore listings of so-called variable interest entities (VIEs).

"A VIE is an overseas holding company that enters into a complex web of contracts with a mainland operating company to replicate the economics of a shareholding. Ever since the Nasdaq IPO of Sina.com in 2000, VIEs have been used by hundreds of Chinese companies...

"to sidestep foreign investment restrictions in sensitive sectors such as ecommerce, media & telecoms," inc. #China's tech giants #Alibaba, #JDcom & #Baidu."

"The legality of VIEs has never been made clear. This strategic ambiguity gives wriggle room for authorities & still allows foreign capital to flow to growth sectors." Under the new rules, the CSRC says it will support VIE listings if they “stay compliant with local regulations”.

"VIEs will be allowed to offer shares abroad 'under consultation w/depts in charge'." Another pertinent development is the announcement earlier this week by Chinese authorities urging state-owned firms to phase out using the Big Four accountancies...trib.al/xPDqleN

...allegedly over data & Chinese nat'l security concerns. The Dec 2022 agreeement that prevented the delisting of 200 Chinese firms from US stock exchanges was averted only because the PCAOB agreed to inspect the audits of Chinese firms via 2 Big Four branches in #HongKong #香港

But, as one recent report pointed out, forcing US-listed Chinese companies to comply w/PCAOB audits via the HFCAA means that #China's firms will access US capital markets through the private equity market & #HongKong stock market #香港 cnbc.com/2020/07/03/poi…

So, as Coben astutely concludes, "The bottom line is that #China wants its companies to have access to foreign capital, but on its own terms, with strict controls on who raises what & under what conditions."
ft.com/content/cba55a…