Getting listed is notorious difficult for Chinese companies, because getting permissions in mainland China is tough. But there is hope, writes professor Paul Gillis in the Wall Street Journal, as regulators in China and Singapore recently signed an agreement to let private companies list directly. Now such an agreement is needed between China and the US.
The problem is that so many Chinese companies are forced to list overseas because it is still so difficult to win permission to issue shares on the mainland. That makes the deals a lose-lose for investors everywhere. Chinese citizens can’t buy offshore shares be- cause of the mainland’s capital controls. Meanwhile,foreign investors technically don’t buy the company, either.To circumvent foreign-ownership restrictions, Chinese firms use the so-called variable-interest entity (VIE) structure. With the VIE structure, offshore shell companies have contractual claims to the revenues from, but no actual ownership of, the Chinese firms.
Fortunately,a solution is finally coming into sight, from an unexpected quarter: Singapore. The China Securities Regulatory Commission (CSRC) in November reached an agreement with Singaporean authorities to allow Chinese companies to list directly in the Lion City without first setting up an offshore holding company. If this becomes atemplatefor other jurisdictions—and aseed of further reforms in China—investors everywherestand to benefit.
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