China to plug overseas listing loophole

China is planning rule changes that would allow it to block a Chinese company from listing overseas even if the unit selling shares is incorporated outside China.

The China Securities Regulatory Commission is leading efforts to revise rules on overseas listings that have been in effect since 1994 and make no reference to companies registered in places like the Cayman Islands, according to people familiar with the matter.

Once amended, the rules would require firms structured using the so-called Variable Interest Entity model to seek approval before going public in Hong Kong or the United States, said the people.

The proposed change is the first indication of how Beijing plans to implement a crackdown on overseas listings flagged by the country’s State Council on Tuesday. Closer oversight would plug a gap that’s been used for two decades by technology giants from Alibaba Group (9988) to Tencent (0700) to attract foreign capital and list offshore, potentially thwarting the ambitions of firms like ByteDance contemplating going public outside the mainland.

Chinese firms have raised about US$76 billion (HK$593 billion) through first-time share sales in the United States over the past decade.

The changes are subject to approval by the State Council, the people said. The securities regulator plans to discuss potential revisions with firms that underwrite share sales, one of the people said.

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