Regulator: Rule changes to ease overseas listings

China Securities Regulatory Commission. (Photo provided to China Daily)

The chairman of China's top securities regulator vowed over the weekend to promote China-U.S. cooperation on audit supervision and accelerate the launch of new overseas listing rules, indicating the country's strong commitment to clearing any regulatory uncertainties.

China's efforts to smooth the channel for Chinese companies listing overseas will help anchor market expectations and boost investor confidence, though it will take time and effort to totally resolve the audit dispute with United States' regulators, experts said.

Yi Huiman, chairman of the China Securities Regulatory Commission, said the commission aims to promote achievements in cooperation between China and the U.S. on audit supervision based on the principle of "respecting international practice and abiding by domestic laws and regulations".

Efforts will be made to create a predictable "international regulatory environment for high-level opening-up of the capital market", Yi said on Saturday while addressing the third meeting of the China Association for Public Companies' representatives.

The commission supports local companies using domestic and overseas markets to develop, and it will speed up efforts to make new regulations concerning offshore issuance and listing effective, and keep the channel of overseas listing open, Yi said.

On April 2, China announced a draft revision of confidentiality rules for Chinese companies listing overseas, paving the way for China-U.S. cooperation on auditing supervision.

The draft rules scrap a requirement that on-site inspections related to overseas-listed Chinese companies should be mainly conducted by Chinese regulators or rely on their inspection results. Experts said the changes may help mitigate the threat of some U.S.-listed Chinese companies being delisted over the next two years.

In December, the commission also unveiled draft rules on domestic regulations relating to Chinese companies listing overseas. The rules extended the commission's oversight of offshore listings of Chinese companies with variable interest entity structures. The VIEs had been used by companies listing on offshore stock markets, primarily the U.S., to circumvent Chinese rules restricting foreign investment in sensitive industries.

Dai Guanchun, a senior capital markets lawyer based in Beijing, said the recent developments indicated that Chinese and U.S. regulators have made a good start in resolving the audit dispute, which has helped stabilize market expectations.

However, more solid efforts are needed to completely resolve the dispute and remove delisting risks, Dai said, citing the need for both sides to reach consensus about how joint on-site inspections should work.

To facilitate U.S. regulators' participation in on-site inspections, China may need to become a signatory to the Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, a regulatory cooperation framework provided by the International Organization of Securities Commissions, Dai said.

Yi also said China will launch a new round of capital market opening-up measures at an early date, including increasing the accessible securities in stock connect programs between mainland and Hong Kong exchanges, expanding and improving the Shanghai-London Stock Connect, and making more futures products available to international investors.

China's capital market has become a key destination for global asset allocation and household wealth management, where onshore institutional investors and overseas investors hold 24.3 percent of total stocks that can be freely traded on the market, up from 17.6 percent three years ago.

Amid positive regulatory signals, the Nasdaq Golden Dragon China Index, which tracks China-based businesses traded on the Nasdaq, rebounded from 4,991.72 points on March 15 to Friday's close of 7,044.37 points, but is still down 21 percent since the beginning of the year.