Economy May 04

China listing limit lowered for red-chips 

Way cleared for smaller Hong Kong-based Chinese companies to sell their shares in Shanghai and Shenzhen bourses  

by Huang Wanyi
China listing limit lowered for red-chips 
Smaller red-chips will be able to list their shares on the Shanghai stock exchange under a new pilot scheme. Photo: Wikimedia

(ATF) Chinese tech companies incorporated in Hong Kong will find it easier to sell their shares on China’s exchanges following new rules issued by the top securities regulator.

The market capitalization threshold for so-called red-chip companies to trade on the mainland has been lowered to 20 billion yuan ($2.8bn) from 200bn by the China Securities Regulatory Commission (CSRC).  

To be eligible under the pilot scheme, companies must have self-developed, world-leading technologies, innovative strengths and a strong position in their industries, the CSRC said.

Qualification will permit companies to list on the Shanghai or Shenzhen stock markets or issue China Depositary Receipts (CDRs). They may also list on the SME (small and medium-sized enterprises) Board, the ChiNext Board and the STAR market, said the CSRC.

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The red-chip class of companies, which include telecom giant China Mobile, were created to bring foreign capital into China’s restricted markets. They are largely state-owned and must bring in a certain of proportion of their revenue from the Chinese mainland to retain red-chip certification.  

Regarding companies with a variable interest entities (VIE) structure, the CSRC said it would seek advice from authorities overseeing the applicant's industry, as well as the National Reform and Development Commission and the Ministry of Commerce, and make decisions in accordance with relevant laws and regulations.

Meanwhile, innovative companies that have yet to be listed overseas should report to the CSRC on the arrangement of matters involving the use of foreign exchanges such as the reduction of stake before making their application, according to the adjustment.

The CSRC has also pledged to be strict in scrutinizing the applications to prevent market risks, and make severe punishment if there is any financial fraud to be found.