As China’s capital market heats up with fast-growing and profitable companies sought after by investors, many Chinese companies that had been preparing an overseas listing have changed their minds and decided to return to the domestic capital market through a backdoor listing.
Dismantling the red-chip structure is a big hurdle in the process. This column briefly explains some major regulatory concerns over the establishment and dismantling of the red-chip structure, such as foreign exchange, taxation and the exit mechanism for investors. We will also review the guidelines announced by the stock exchanges and the China Securities Regulatory Commission as well as practical cases.
Partner
Grandway Law Offices
FOREIGN EXCHANGE ISSUES
For foreign exchange, companies that had established and dismantled red-chip structures from 1 November 2005 to 13 July 2014 are subject to the State Administration of Foreign Exchange’s Circular on relevant issues concerning China Foreign Exchange Administration for Domestic Residents Engaging in Overseas Financing and Round-Trip Investment via Special Purpose Vehicles (SPVs) (Circular 75).
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Cao Yajuan is a partner and Zhang Xinyue is an associate of Grandway Law Offices
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