Focus on CSRC’s new CDR opinion paper

The Several Opinions on Launching the Pilot Programme of Shares or Depository Receipts by Innovative Enterprises (the opinion paper) by the China Securities Regulatory Commission (CSRC) induces a series of analyses and reviews of its implementation. This article seeks to offer some critical thoughts from a different angle.

The expansion of “red chip”. “Red chip” itself is market-created business jargon. Generally, it refers to stocks that are traded on overseas stock exchanges and issued by companies established outside of the PRC, but tied to business interests mainly within the PRC and controlled by PRC legal or natural persons, or a company structure. To decide whether enterprises are “red chip”, the key is to weigh both the ownership and company structure.

However, in the opinion paper, the definition only carries the factor of company structure, i.e., red-chip enterprises are foreign-incorporated enterprises of which the main business activities are based within the PRC. Therefore, the inclusion of this term is enlarged significantly in a way that foreign-controlled enterprises that centre their main business activity in the PRC will at least theoretically qualify as pilot enterprises. For instance, the branch of Greater China’s business in an international technology conglomerate may even qualify.