Direct Overseas Listing of Chinese Enterprises: A Clear Regulatory Framework and Explicit Regulatory Requirements are Needed
2011/2/21 11:11:48 点击率[5060] 评论[0]
【法宝引证码】
    【学科类别】经济法
    【出处】Journal of Securities Opperations & Custody, Vol.3,No,3,2010,pp.252-267
    【写作时间】2010年
    【全文】

       INTRODUCTION
     
       With the rapid development and the further opening up of Chinese economy, listing on foreign stock exchanges has become important means for Chinese enterprises to access to international capital markets and realize the strategies of internationalization. Overseas listing help Chinese enterprises widen their channels for finance, improve their corporate governance, enhance their international competitiveness, and establish positive international images.
     
       In the early 1990’s, China began to establish its national securities markets. After the birth of the Shanghai Stock Exchange(SHSE) and Shenzhen Stock Exchange(SZSE) in late 1990, the market for domestically listed foreign capital shares(B shares)was also created. Subsequently, a program for supporting the overseas listing of joint-stock enterprises was enforced under the direct leadership of the PRC State Council(i.e. China’s highest organ of State administration)。 At that time, there are three main objectives that were pursued by the program: (i) to learn from the experience of mature securities markets; (ii) to promote the reform of state-owned enterprises and establish corporate governance for them; and (iii) to attract foreign funds which were scarce at that time.
     
       On 19 June, 1993, the China Securities Regulatory Commission(CSRC), the Securities and Futures Commission of Hong Kong(HKSFC), the Shanghai Stock Exchange(SHSE), the Shenzhen Stock Exchange(SZSE) and the Hong Kong Stock Exchange(HKEX) signed a five-party “Memorandum of Regulatory Cooperation” which laid the foundation for regulatory cooperation and law enforcement on securities related issues between the PRC Mainland and Hong Kong. In July the same year, Tsingtao Brewery Company Limited (0168, HK) accomplished an initial public issue of foreign capital shares listed overseas (H shares)and was listed on the HKEX. This is the first Chinese enterprise that is directly listed abroad.
     
       After the mid-1990’s, Chinese enterprises have gradually developed two models for overseas listing, i.e. direct overseas listing and indirect overseas listing, and the regulatory frameworks have been established respectively. However, the relevant Chinese laws and regulations have not historically defined the concepts of direct overseas listing and indirect overseas listing. In practice, direct overseas listing refers to the overseas issuance and listing of securities by a joint-stock limited company incorporated in the PRC Mainland, while indirect overseas listing refers to the issuance and listing of securities by a company incorporated outside the PRC Mainland after the acquisition of the stakes, assets or revenue of one or more domestic enterprises in the PRC Mainland(popularly known as red-chip listing)。
     
       As of the end of May 2010, 165 domestic enterprises are directly listed abroad (including 6 enterprises that have been delisted) and the cumulative capital raised exceeded USD 120 billion. With regard to the target markets, enterprises that are directly listed abroad are mainly listed on the HKEX. Among the existing 159 enterprises that are directly listed abroad, 156 enterprises are listed in Hong Kong, three are listed on  the Singapore Stock Exchange. Among the companies listed in Hong Kong, 15 are also listed on the New York Stock Exchange (NYSE), the London Stock Exchange (LSE) or the Singapore Stock Exchange (SGX)。 In particular, after the signing of the “Closer Economic Partnership Arrangement” (CEPA) between the PRC Mainland and Hong Kong in June 2003, a group of large-scale state-controlled enterprises have been listed in Hong Kong and have set the records in terms of the issue size. For example, Industrial and Commercial Bank of China Limited (ICBC)(1398, HK) issued H shares to raise approximately USD 16 billion in October 2006. This has so far been the world’s largest IPO project. The subscription funds frozen in the IPO process of China Railway Construction Corporation Limited (1186, HK) amounted to approximately HK$ 631.2 billion and represented the historical record in the Hong Kong market.
     
       In addition, the operation of direct overseas listing has been actively innovated. For example, the ICBC and China CITIC Bank Corporation Limited (0998, HK) successfully accomplished the “A+H” offering plan, which means the concurrent offering and listing of A shares and H shares at the same price on the same date.China Railway Group Limited (0390, HK), China Railway Construction Corporation Limited, China South Locomotive and Rolling Stock Corporation Limited (1766, HK) and Metallurgical Corporation of China Ltd. (1618, HK) successfully implemented the “first A then H” offering plan, which means the completion of H shares offering within a short period of time following A shares offering.
     
       Besides the current section which a historic review of direct overseas listing of Chinese enterprises, there are five sections in this article. The second section outlines the regulatory framework. The third section sums up and analyzes the problems existing in the regulatory framework. The fourth section expounds the objectives and principles of the domestic regulation over direct overseas listing and gives a series of policy recommendations for improving the regulatory work. The last section draws the conclusions.
     
       China’s Regulatory Framework for Direct Overseas Listing
     
       With the practice of direct overseas listing of domestic enterprises, China gradually established the regulatory framework from scratch based on the PRC Company Law (1993)。
     
       At the early stage, the legal basis governing direct overseas listing was clarified. (i) The relevant regulations stipulate explicitly that direct overseas listing has to be approved by the competent department. Article 6 of the Provisional Regulations on the Administration of Share Issuance and Trading (hereinafter the ‘Provisional Regulations’)stipulates that: “……A domestic enterprise must obtain approval from the Securities Commission of the PRC State Council (SCSC) before it directly or indirectly issue shares abroad or has its shares to be traded abroad. The specific measures with respect thereto shall be formulated separately.”The PRC Securities Law (1998)and the PRC Securities Law (2004 Revision)have similar provisions. (ii) The corresponding regulatory review and approval basis was clarified. Article 85 of the PRC Company Law (1993)stipulates that: “A joint-stock limited company may make a public offer of shares abroad upon the approval of the securities regulatory department of the PRC State Council. The specific measures shall be specially prescribed by the PRC State Council.” The PRC Company Law (1999 Revision)and the PRC Company Law (2004 Revision)have similar provisions. However, it is important to note that Article 238 of the PRC Securities Law (2005 Revision)stipulates that: “Any domestic enterprise that directly or indirectly issues any securities abroad or lists its securities abroad for trading shall be subject to the approval of the securities regulatory authority under the PRC State Council according to the relevant provisions of the PRC State Council. ” As such, the legal basis for the domestic review and approval of DIRECT OVERSEAS LISTING is no longer the “special provisions”, but the “provisions” of the PRC State Council. (iii) The legislative model for the above legal basis was adjusted. Before 2006, the legal basis for the regulation over direct overseas listing was concurrently embodied in China’s company law and securities law, i.e. the PRC Company Law (1993), the PRC Company Law (1999 Revision), the PRC Company Law (2004 Revision) the PRC Securities Law (1998) and the PRC Securities Law (2004 Revision)。 However, the PRC Company Law (2005 Revision) does not prescribe any rule relating to direct overseas listing. In addition, Chapter II (Securities Issuance) of the main text of the PRC Securities Law (1998) as well as the PRC Securities Law (2004 Revision) contains provisions governing direct overseas listing, but the PRC Securities Law (2005 Revision) moves the above clause from the main text to Chapter XII (Supplementary Provisions)。 This implicitly reflects the attitude of the Chinese legislative authority on the applicable law of direct overseas listing, which means that direct overseas listing does not belong to the scope to be adjusted by the company law of the PRC Mainland, and in principle, the securities law of the PRC Mainland shall not apply.
     
       Secondly, in accordance with the provisions of Article 85 of the PRC Company Law (1993), the PRC State Council enacted the Special Provisions which lay down a series of special provisions or provisions inconsistent with those in the PRC Company Law (1993) with respect to the minimum number of promoters of H-share companies, qualification of H shares investors, law application and dispute resolution.
     
       Thirdly, in order to regulate the corporate governance and the organizational behaviour of H-share companies, the SCSC and the original State Commission for Restructuring the Economic System(SCRES) jointly promulgated the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (hereinafter the “Mandatory Provisions”)in accordance with the relevant provisions of the PRC Company Law (1993) and the Special Provisions. The Mandatory Provisions lay down uniform provisions on the important content in the Articles of Association of H-share companies.
     
       Fourthly, the CSRC issued two regulatory documents to easablish the core regulations(including the overseas listing conditions, and the application, review and approval procedures) for direct overseas listing. On one hand, the Notice on Issues Relating to Enterprises’ Applications for Overseas Listing (hereinafter the “Notice on Listing on Overseas Main Board”)is applicable to direct overseas listing on the main boards of overseas stock exchanges.On the other hand, the Guidelines on the Vetting and Regulation of Applications for Listing on the GEM in Hong Kong by Domestic Enterprises (hereinafter the “Guidelines on Listing on the HKGEM”)is applicable to direct overseas listing on the GEM of the HKEX.
     
       In addition, the PRC State Council and relevant competent authorities including the CSRC severally or jointly promulgated several other regulatory documents that lay down specific requirements for H-share companies on issues such as the corporate governance, on-going disclosure obligations, foreign exchanges, reduction of state stockholding and the centralized registration and deposit of shares not listed overseas.
     
       In view of the above, the regulatory framework for DIRECT OVERSEAS LISTING includes three levels. Article 238 of the PRC Securities Law (2005 Revision) serves as the legal and regulatory basis, the fundamental regulatory regimes are established by the Special Provisions and the specific regulatory standards and requirements are provided by other regulatory documents such as the Guidelines on Listing on the HKGEM, the Notice on Listing on Overseas Main Boards and the Mandatory Provisions, etc. These regualtory documents have four paralled functions, i.e. the regulation of issuance and overseas listing of H shares, on-going disclosure requirements, requirements of corporate governance and compliant operation, and regulation of foreign exchanges.
     
       China’s Regulation for Direct Overseas Listing: A Critical Assessment
     
       In recent years, international capital market has witnessed significant changes, and the competition among stock exchanges in attracting listing resources is getting tough. Meanwhile, the infrastructure of PRC’s domestic stock market is increasing perfect, such as the considerable revisions made for the PRC Company Law (1993) and the PRC Securities Law (1998) and the promulgation of the executive rules and regulations etc, which greatly improved the competitiveness and attraction of domestic stock market. Additional, with the constant expansion of foreign exchange reserves, Chinese government gradually changes its attitude to absorb foreign funds, and attaches more and more importance to the substance and quality of foreign capital. In such cases the regulatory policy of overseas listing seems to be visibly changing, which means the government supports and encourages the direct overseas listing, and restraints the indirect overseas listing. However, the regulatory framework and regimes for the direct overseas listing have demonstrated many defects and inadequacies, and need to be coordinated and improved.
     
       In the first place, the regulatory framework is not reasonably devised and developed. (i) The scope of domestic regulatory power is unclear. Theoretically, cross-border listed companies are regulated at two distinct levels: on the one hand, they are subject to their jurisdiction of incorporation and, on the other hand, to the jurisdiction where their securities trade.As such, the issuance and listing abroad of H shares by Chinese enterprises and the follow-up issues such as the continuous disclosure obligation shall mainly be subject to the regulatory provisions of the target market and shall be regulated by the competent authorities of that market. Furthermore, taking into account the representations stipulated by Article 238 of the PRC Securities Law (2005 Revision), the CSRC is only mandated to approve applications for overseas listing, but is not authorized to supervise H-share companies on an ongoing basis. In contrast, the Several Opinions on Information Disclosure stipulates that the CSRC is empowered to supervise the continuous information disclosure of H-share companies to a certain extent.In fact, the Several Opinions on Information Disclosure has never been effectively implemented, due to the fact that the provisions are impracticable and there is lack of regulatory sanctions with respect to violations. (ii) Regulatory requirements with the same functions are fragmented in the regulatory framework, making them difficult to understand and apply. For example, the core regulatory requirements for direct listing on the main boards and the GEMs of overseas stock exchanges are embodied in two separate regulatory documents, i.e. the Notice on Listing on Overseas Main Boards and the Guidelines on Listing on the HKGEM. Furthermore, they do not exist at the same level in the regulatory framework.(iii) Some regulatory documents appear to be redundant. For example, the Notice on 1995 Annual General Meeting has been implemented completely by related H-share companies in 1995, and the issues regulated by the Report on Overseas Issuance and Listing have been clarified by the Special Provisions, the Notice on Listing on Overseas Main Boards and the Guidelines on Listing on the HKGEM. It is regrettable that the 1995 Annual General Meeting and the Report on Overseas Issuance and Listing have not been explicitly repelled.
     
       Secondly, the overseas listing conditions are overly strict and rigid, and the listing of original shares held by sponsors goes through unnecessary limitation. (i) According to the Notice on Listing on Overseas Main Boards, the domestic enterprise applying for being directly listed on main board on overseas stock exchanges shall meet certain requirements in some aspects such as financial conditions, operating results and estimated financing amount, namely, the net assets are not less than CNY 400 million, the profit after tax within the past fiscal year is not less than CNY 60 million, and the financing amount calculated in terms of reasonable and expected P/E ratio is not less than USD 50 million.Such conditions are not only stricter than those for the A-share IPO and listing in domestic market, but also higher than those stipulated by some overseas stock exchanges such as the HKEX in which H-share companies are relatively intensive.(ii) The Notice on Listing on Overseas Main Boards makes the requirements for the minimal financing amount to H-share IPO, this means that the direct overseas listing can only be carried out in the manner of H-share IPO, it is not allowed to do it under the circumstance of not financing in the manners such as back door listing, stock conversion listing etc. Although the Guidelines on Listing on Overseas GEM does not define the minimal financing amount, the associated regulatory practice is same as that for the main boards. (iii) According to the current regulatory policies, the shares held by the sponsors of H-share companies are classfied as domestic capital shares, which is allowed to be circulated in domestic market through agreement transfer, but not allowed to be listed and traded in the overseas stock exchange. The unconvertibality of domestic capital shares to H shares is one of the main causes of that a lot of Chinese enterprises choose to be indirectly overseas listed.
     
       Thirdly, the Special Provisions and the Mandatory Provisions need to be perfectly revised. (i) As according to Article 238 of the PRC Securities Law (2005 Revision), the legislation basis of the Special Provisions have changed and the PRC State Council is no longer authorized to prescribe special regulatory requirements for overseas listing, the articles in the Special Provisions that are inconsistent to the PRC Company Law (2005 Revision) shall be corrected. For example, the Special Provisions requires that written notice of general meeting of shareholders shall be sent out 45 days in advance, but the PRC Company Law (2005 Revision) requires the time, place and remits of general meeting of shareholders shall be notified 30 days in advance.(ii) Because the Special Provisions is a higher-level law of the Mandatory Provisions, the articles in the Mandatory Provisions that are inconsistent to the PRC Company Law (2005 Revision) and the Special Provisions shall be timely revised after the revision of the Special Provisions. For example, according to Article 50 of the Mandatory Provisions, the shareholders owning more than 5% of shares with voting rights have the right to advance proposals in general meeting of shareholders, but the provision of Article 103 of the PRC Company Law (2005 Revision) stipulates that the shareholders individually or totally holding more than 3% of shares have the right to propose resolutions in the general meeting of shareholders. (iii) The provisions in the Special Provisions and the Mandatory Provisions with respect to dispute resolution and applicable laws shall be properly revised. For example, DIRECT OVERSEAS LISTING shall be mainly applicable to the laws of the target market, but Article 6 of the Special Provisions requires that the laws of the PRC shall be applicable to solve the disputes involving H-share shareholders. Furthermore, Article 163 of the Mandatory Provisions requires that all transnational contractual and non-contractual securities disputes involving H-share companies listed on the HKEX shall be submitted to arbitration, which obviously goes against the principles of voluntary arbitration and of party autonomy.(iv) Some regulatory requirements of the Special Provisions and the Mandatory Provisions are divorced from the development of practices. For example, in recent years, with the approval of the PRC State Council, some institutions such as National Council for Social Security Fund of the PRC (NCSSF), China Investment Corporation and insurance companies began to join the campaigns of investment in overseas securities market, some financial institutions such as mutual funds, securities firms and commercial banks was authorized to invest in overseas securities markets by qualified domestic institutional investor (QDII), and a lot of domestic natural persons and corporations are in fact directly invested in overseas stock market. Under this circumstances, the scope H-share investors is far beyond that defined by current regulatory provisions.
     
       Fourthly, the regulatory requirements for H-share companies are incongruous with those for A-share companies. For example, as regards the reduction of state-owned shares, the regulatory requirements for H-share companies provide that the state-owned shareholder shall proportionally reduct the state-owned shares, not only at the stage of initial public issue of H shares, but also when the H-share company makes additional offering of H shares. As such, the H-share issuers has to ask its state-owned shareholder(s) to obtain the related approval from the State-owned Assets Supervision and Administration Commission of the PRC State Council (SASAC) and the NCSSF respectively before applying for directly overseas listing to the CSRC. However, for A-share companies, the state-owned shares are required to be reduced only during the initial public issue, and the state-owned shareholders are not required to reduce the state-owned shares during the subsequent increasing investment for issuing A shares.The second example is that according to the Mandatory Provisions, in the event that the proportion of shares with voting rights held by shareholders who intending to attend the general meeting of stockholders, does not reach the half of all the shares with voting rights, the H-share company shall notify the shareholder with a public announcement prior to the general meeting of stockholders;However, there is no requirement of reminding announcement before A-share companies’ general meeting of stockholders in the PRC Company Law (2005 Revision) and related regulatory rules prescribed by the CSRC.The third example is that it is required by the Mandatory Provisions that each director of the H-share company shall have one vote in the board meeting, and in case of the affirmative votes as same as the negative votes, the chairman of the board has right to cast one more vote;However, as for A-share companies, it is stipulated that each director has one vote in the boarding meeting without any exception.With the increase of the number of companies concurrently listed domestically and overseas, such matters will no doubt make the listed companies feel difficult to comply with different regulatory requirements.
     
       Finally, the regulatory efficiency and transparency require to be improved. (i) The administrative permit items seem to be excessive and the review process is usually unforseable, which restrains the decision-making efficiency and financing capacity of H-share companies to a certain extent. Under current regulatory regime for directly overseas listing, besides H-share IPO, the subsequently additional offering of H shares, the issue of corporate bonds that can be converted into H shares, and transfer from the GEM to the main board of overseas stock exchanges, shall be reviewed by the CSRC. It usually takes no less than two months for the applicant to obtain CSRC’s approval. Relatively speaking, with respect to the subsequent offer of H-shares and the changing of listing status, the overseas regulatory requirements are very lenient and the review process is very easy. (ii) Part of the permit standards lack transparency, in a situation of “internal control” by the CSRC. Although some provisions like the Notice on Listing on Overseas Main Board and the Guidelines on Listing on the HKGEM have defined the main conditions for directly overseas listing, but the CSRC often focuses on some aspects of the applicant such as independence, interrelated transaction, purpose of raised fund, approval of fixed assets investment, ownership of land and building and social responsibilities etc during the reviewing process. In fact, these aspects have been considered as additional conditions for administrative permit. Undoubtedly, it is hard for the applicant to completely understand and grasp these “latent” regulatory requirements. (iii) The “window guide” of the CSRC is not conducive to improve the marketization of directly overseas listing. For example, in order to reserve listing resource for domestic stock market, or to mitigate the pressure of the rapidly increasing foreign exchange reserve etc, the CSRC may set some informal restrictions for the directly oversea listing; or require the applicant to preferably issue A shares and be listed on domestic stock market; or irrationally restrain the purpose of raised funds overseas, and not allow the applicant to use the funds overseas; or intervene the determination of the issue price of H shares, and require the issue price of H shares to be no less than that of A shares or the market price of A shares of the applicant.
     
       Some Policy Proposals
     
       The first premise for effectively regulating directly overseas listing of Chinese enterprises is to precisely define the purposes and objectives of such regulation, which is the base of reconstructing the regulatory framework and perfecting the regulatory regimes. Generally speaking, the prior principle of securities supervising is to protect the interests of investors. Thus the securities regualtory authority of the mother country of the cross-border listed companies always lacks sufficient theoretical basis to regulate the overseas listing of domestic companies. As H shares are mainly subscribed by oversea investors and the traded in overseas stock exchanges, the protection of such investors’ interests does not seem to be contained in the legal competence of the CSRC. However, we should also know that the current legal system in the PRC Mainland is far imperfect, the general standardized-operation ability of Chinese enterprises is not sufficient, and their knowledge on the rules, regulations and practices of overseas capital market are not adequate. General speaking, it is a common practice in emerging markets to regulated to some extent of the issuance and overseas listing of securities by domestic enterprises. For example, according to the regulations of the Russian Federation, any domestic enterprise seeking for issuance and overseas lisitng of its shall be permitted by the Federal Service for Financial Market(FSFM); and the number of shares to be issued outside Russia must not exceed 5% if the issuer is carrying out activities of strategic importance for nantional defence and security of Russia.Even for the mature markets, it is also recognised that a country take maesures to regulate the issuance and overseas listing of domestic enterprises with the aim to guard the reputation of national financial market.As such, in order to protect China’s nantional economic security and the general interests, and ensure the compliant operation of H-share companies, it is necessary to regulate direct overseas listing to a certain extent.
     
       Based on defining regulatory principles, the author suggests that the CSRC shall be self-restrictive when exercising the regulatory powers, so that clear demarcations can be pinpointed between domestic regulatory powers and overseas counterparts, and between regulatory powers and market mechanism. On the one hand, the boundary of CSRC’s regulatory power shall be reasonably defined. As the securities regulatory authority of the jurisdiction in which H-share companies are incorporated, the CSRC shall exercise its regulatory powers as to the company law matters. Matters concerning the securities law, including issue and trading of H shares and continuous regulation of H-share companies, shall be governed by the law of the target market. On the other hand, deepth of CSRC’s regulatory intervention shall be appropriate. Whether to intervene in a specific matter shall be based on the fact that whether the intervention conduces to maintaining the reputation of domestic securities market and the image of H-share companies. In the event that corporate autonomy or shareholders’ autonomy is not against aforesaid regulatory principles, regulatory powers should be subordinate to the market mechanism.
     
       As Part III have pointed out, the regulatory framework for directly overseas listing is not sufficiently clear, and the regulatory requirements are not sufficiently explicit. For most small-and-midium-sized enterprises, the channel to build an international-capital platform is unsmooth. Thus, in the current situation, it is required to make the complete consideration about perfecting the regulatory framework, improve the regulatory regimes and practice.
     
       Firstly, the regulatory framework should be refined. (i) In view of that the continuous information disclosure of H-share companies is regulated by overseas securities regulator or stock exchanges, it is recommended to timely revise the Several Opinions on Information Disclosure. On the one hand, the author propose to cancel the provisions requiring H-share companies to report or submit as record the important events to the CSRC; On the other hand, the author suggest setting up a regulatory regime by which H-share companies regularly reports to the CSRC, by this way the proper domestic regulation of H-share companies can be kept, while the compliance burden of H-share companies can be reasonably relieved. (ii) The regulatory documents such as the Notice on Listing on Overseas Main Board, the Guidelines on Listing on the HKGEM, the Notice on Spin-off Listing and the Notice on Share Registration etc shall be integrated by the CSRC into a new regulation, so as to set up a unified regulatory requirements. (iii) It is recommended to timely check up the regulatory documents and repeal the Report of Overseas Issuance and Listing and the Notice on 1995 Annual General Meeting.
     
       Secondly, regulatory regimes shall be perfected. (i) Soften the overseas listing conditions, ease the requirement on some aspects such as net assets, profit after tax and expected financing amount etc, and allow Chinese enterprises to accomplish the directly oversea listing by means of equity replacement etc, so as to create reasonable environment for domestic enterprises to flexibly employ overseas capital platform. (ii) Based on Article 238 of the PRC Securities Law (2005 revision), timely revise the Special Provisions and institute a new regulation. On the one hand, the provisions inconsistent with the PRC Company Law (2005 Revision) shall be cancelled; On the other hand, the rules divorced from the development of practices shall be revised. (iii) Based on CSRC’s regulatory principles for directly overseas listing, it is advised to lapse the regulatory regimes aiming at protecting the interests of oversea investors, such as the regulatory rules of dispute resolution and applicable laws etc. (iv) Coordinate the regulatory requirements for H-share companies and that for A-share companies, to efficiently reduce the compliance burden of cross-border listed companies.
     
       Finally, the administrative permit program shall be simplified and standardized, and the transparency of regulatory process shall be enhanced. (i) At the same time of reserving the administrative permit item for H-share IPO, it is recommended to consider cancelling other administrative permit items or simplifying the reviewing process; (ii) It is recommended to define clear regulatory conditionts and requirements and set clear review period in the new regulation in which the Notice on Listing on Overseas Main Board, the Guidelines on Listing on the HKGEM, the Notice on Spin-off Listing and the Notice on Share Registration are to be integrated, so as to form a due process of regulation. (iii) Restrict “window guide” and other unnecessary regulatory intervention to raise the level of marketization of directly overseas listing.
     
       Conclusion
     
       In order to protect China’s nantional economic security and the general interests, and ensure the compliant operation of H-share companies, it is necessary to regulate the direct overseas listing of Chinese enterprises to a certain extent. However, the domestic regulatory power shall be exercised in harmony with overseas regulatory power, and respect the market force. There exist a lot of problems in China’s domestic regulation of direct overseas listing, which are substantial obstacles for Chinese enterprises to be directly listed overseas. As such, there is a pressing need to refine the regulatory framework, clarify the regulatory standards, and improve the regulatory efficiency and increase the transparency of regulatory process.

    【作者简介】
    刘轶,南开大学经济学院副研究员,硕士生导师,主要研究国际金融法。
    【注释】
    [1] According to Article 3 of the Provisions of the State Council on Domestically Listed Foreign Capital Shares of Joint Stock Limited Companies (promulgated by Order No. 189 of the PRC State Council on December 25, 1995 and effective as of the date of promulgation) and other relevant regulations, B shares mean shares issued by a joint-stock limited company in registered form with par value denominated in RMB, subscribed and traded in foreign currencies, and listed on a domestic stock exchange. In general, shares issued by a joint-stock limited company with par value denominated in RMB, subscribed and traded in RMB, and listed in a domestic stock exchange are called RMB ordinary shares (A shares). There are no any other kind of shares that are issued and traded in the securities market of the PRC Mainland.
    [2] See Main Points of the Economic System Restructuring of 1993(drafted by the original State Commission for Restructuring the Economic System(SCRES), and promulgated by PRC State Council on March 8, 1993), the Chinese version is available at http://news.xinhuanet.com/ziliao/2005-03/18/content_2713741.htm.
    [3] According to Article 3 of the Special Provisions of the State Council on the Issuance and Listing of Shares abroad by Joint-Stock Limited Companies (promulgated by Order No. 160 of the PRC State Council on August 4, 1994 and effective as of the date of promulgation, hereinafter the Special Provisions), H shares mean shares issued by a joint-stock limited company in registered form to overseas investors with par value denominated in RMB, subscribed in foreign currencies, and listed on an overseas stock exchange. At the early stage, the target market for Chinese companies’ direct overseas listing was confined to the HKSE, so shares listed in Hong Kong by these companies are called “H shares” (taking the first letter of Hong Kong). Subsequently, as different ways of overseas listing have been adopted and the locations of overseas listing have diversified, H shares refer commonly to shares issued and listed overseas by a joint-stock limited company incorporated in the PRC Mainland. In practice, Chinese enterprises that have issued H shares and have been listed on an overseas stock exchanges are referred to as H-share companies.
    [4] In the“A+H”offering plan, the offering of A shares and the offering of H shares are governed by different laws, are not conditional upon each other and are not subject to clawback mechanism. As such, “A+H”offering plan includes two independent offers.
    [5] The features of the“First A then H”offering plan are that the offering of A shares and the offering of H shares commence simultaneously, the price ranges are determined simultaneously but the H-share price will be fixed after the A-share price is determined and H shares will be listed following the listing of A shares. The adoption the above operational approach can ensure the offer price of H shares will not be lower than that of A shares and is favourable to the convergence of the trading prices of A shares and H shares of the company listed both domestically and abroad.
    [6] Promulgated by the PRC State Council on April 22, 1993 and effective as of the date of promulgation. Before the promulgation of the PRC Securities Law (1998), the Provisional Regulations set out the legal framework for the regulation of issuance and trading of shares in the PRC Mainland. It is essential to note that some rules of the Provisional Regulations are inconsistent with the relevant provisions of laws enacted subsequently, such as the PRC Securities Law (1998), the PRC Securities Law (2004 Revision) and the PRC Securities Law (2005 Revision). However, the Provisional Regulations have not yet been repealed. Under this circumstance and based on the principle of higher-level laws taking precedence over lower-level laws, where the provisions of the Provisional Regulations are inconsistent with those of higher-level laws, the latter shall prevail.
    [7] Both the SCSC and the CSRC were established in October, 1992. The former is the competent authority responsible for the unified macro administration of securities markets. Its director is the premier of the PRC State Council and its commissioners comprise the persons-in-charge of 13 relevant departments such as the People’s Bank of China. The latter is the executive body under the SCSC. In April, 1998, the SCSC and the CSRC merged and the latter, being the entity directly under the PRC State Council, is responsible for the centralized and unified regulation of the national securities and futures markets.
    [8] Adopted at the Sixth Meeting of the Standing Committee of the Ninth National People's Congress on December 29, 1998, promulgated on the same date and effective of July 1, 1999.
    [9] Revised at the Eleventh Meeting of the Standing Committee of the Tenth National People's Congress on August 28, 2004.
    [10] Adopted at the Fifth Meeting of the Standing Committee of the Eighth National People's Congress on December 29, 1993, promulgated on the same date and effective as of July 1, 1994.
    [11] Revised at the Thirteenth Meeting of the Standing Committee of the Ninth National People's Congress on December 25, 1999.
    [12] Revised at the Eleventh Meeting of the Standing Committee of the Tenth National People's Congress on August 28, 2004.
    [13] Adopted at the Eighteenth Meeting of the Standing Committee of the Tenth National People's Congress on 27 October, 2005, promulgated on the same date and effective as of January 1, 2006.
    [14] As regards the minimum number of sponsors, Article 75 of the PRC Company Law (1993) stipulates that there shall be more than five sponsors for the incorporation of a joint-stock limited company. Article 6 of the Special Provisions stipulates that there may be less than five sponsors in a joint-stock limited company insorporated by way of promotion. As regards the qualification of H-share investors, the PRC Company Law (1993) does not impose restrictions on the qualification of investors to which a joint-stock limited company makes a public offer of H shares. Article 2 of the Special Provisions stipulates that H shares can only be subscribed by overseas investors. As regards law application and dispute resolution, the PRC Company Law (1993) does not provide for the method to resolve company disputes involving the holders of H shares and the applicable laws for resolving such disputes. Article 6 of the Special Provisions stipulates that company disputes involving the holders of H shares shall be handled according to the resolution method prescribed by the Articles of Association of the company and the laws of the PRC shall apply.
    [15] The SCREC was established in May, 1982 and acted as a comprehensive authority responsible for the study, coordination and guidance of the reforms on economic system under the PRC State Council. In 1998, the SCREC was converted to a lower level institution - the Economic Restructuring Office of the PRC State Council (EROSC). In 2003, the EROSC was abolished and and its reform function was taken by the National Development and Reform Commission (NDRC) under the PRC State Council.
    [16] Jointly promulgated in Zheng Wei Fa [1994] No. 21 by the SCSC and the SCREC on August 27, 1994 and effective as of the date of promulgation.
    [17] Promulgated in Zheng Jian Fa Xing Zi [1999] No. 83 by the CSRC on July 14, 1999.
    [18] Approved by the PRC State Council on September 6, 1999 and promulgated in Zheng Jian Fa Xing Zi [1999] No. 126 by the CSRC on September 21, 1999.
    [19] These regulatory documents include: (a) Provisional Measures for the Administration of Reduction of State-owned Shares for Raising Social Security Funds (promulgated in Guo Fa [2001] No. 22 by the PRC State Council on June 6, 2001, hereinafter the Measures for the Reduction of State-owned Shares); (b) Notice on the Approval and Circulation of China Securities Regulatory Commission’s “Report on Issues Relating to the Overseas Public Offer of Shares and Listing of Domestic Enterprises” (issued in Zheng Wei Fa [1993] No. 18 by the SCSC on April 9, 1993, hereinafter the Report of Overseas Issuance and Listing); (c) Notice on Issues Relating to the Foreign Exchange Regulation for Enterprises Listed Overseas (jointly issued in Zheng Jian Fa Zi [1994] No. 8 by the CSRC and the State Administration of Foreign Exchange (SAFE) on January 13, 1994); (d) Notice on Several Issues Relating to the Holding of 1995 Annual General Meeting and the Amendment of Articles of Association by Companies Listed Overseas (jointly issued in Zheng Wei Fa [1995] No. 5 by the SCSC and the SCREC on March 29, 1995, hereinafter the Notice on 1995 Annual General Meeting); (e) Several Opinions on the Further and Proper Handling of Information Disclosure Work by Companies Listed Overseas (issued in Zheng Jian Fa [1999] No. 18 by the CSRC on March 26, 1999, hereinafter the Several Opinions on Information Disclosure); (f) Opinions on Further Promoting the Regulated Operation and Intensive Reform of Companies Listed Overseas (jointly issued in Guo Jing Mao Qi Gai [1999] No. 230 by the State Economic and Trade Commission and the CSRC on March 29, 1999); (g) Working Guidelines for Secretaries of the Boards of Directors of Companies Listed Overseas (issued in Zheng Jian Fa Xing Zi [1999] No. 39 by the CSRC on April 8, 1999); (h) Notice on Issues Relating to the Further Improvement of Foreign Exchange Regulation of Overseas Listing (jointly issued in Hui Fa [2002] No. 77 by the SAFE and the CSRC on August 5, 2002); (i) Notice on Issues Relating to the Regulation of Overseas Listing of Enterprises Subordinated to Domestically Listed Companies (issued in Zheng Jian Fa [2004] No. 67 by the CSRC on July 21, 2004, hereinafter the Notice on Spin-off Listing); (j) Notice on Issues Relating to the Centralized Registration and Deposit of Non-overseas Listed Shares of Companies Listed Overseas (issued in Zheng Jian Guo He Zi [2007] No. 10 by the CSRC on March 28, 2007, hereinafter the Notice on Share Registration); and (k) Provisions on Strengthening the State Secrets Protection and Archive Management Work Relating to Overseas Issuance of Securities and Listing (jointly promulgated in Zheng Jian Hui Gong Gao [2009] No. 29 by the CSRC, the Administration for the Protection of State Secrets and the State Administration of Archives on October 20, 2009).
    [20] See Garcimartín Alférez, Cross-Border Listed Companies, Martinus Nijhoff Publishers, 2007, pp. 113-117.
    [21] For example, the Several Opinions on Information Disclosure requires that any H-share company must report to the CSRC  as record important events information and so on that are disclosed according to the securities laws of the target market; Any H-share company must notify the CSRC prior to the change of its chairman of board, chairman of board of censors, general manager, financial manager and so on. See the Several Opinions on Information Disclosure, Part II.
    [22] Under China’s legislative system, the Notice on Listing on Overseas Main Boards exists at a level lower than the administrative rules instituted by the CSRC, and the Guidelines on Listing on the HKGEM exists at a level lower than the administrative regulations instituted by the PRC State Council, but higher than the administrative rules of the CSRC. The enactment of the administrative regulations and the administrative rules must comply with legally prescribed procedures, while there is not any procedural requirement as for the enactment of other regulatory documents either by the PRC State Council or by the CSRC.
    [23] Besides these quantitative conditions, Part I of the Notice on Listing on Overseas Main Boards also defines some qualitative conditions for overseas direct listing including: (a) conformity with Chinese laws, regulations and rules for overseas listing; (b) the usage of the funds raised shall conform to industrial policies and foreign-capital utilization policies as well as the state provisions on the establishment of fixed assets investment projects; (c) the corporate governance is normative, the internal control system is effective, and the senior management is relatively stable with high management level; (d) the dividend distribution after the overseas listing shall be secured by reliable sources of foreign exchanges, according to relevant state provisions on the regulation of foreign exchanges; and (e) other conditions prescribed by the CSRC.
    [24] According to Article 33 of Measures for the Administration of Initial Public Offering and Listing of Stocks (promulgated by Order No. 32 of the CSRC on May 17, 2006, and effective as of May 18, 2006), the conditions for A-share IPO and listing in domestic market include but not limited to: (a) having a positive net profit of over CNY 30 million accumulatively for the latest 3 accounting years; (b) having a net cash flow of over CNY 50 million accumulatively, or having a business income of over CNY 0.3 billion accumulatively for the latest 3 accounting years. Relatively, the conditions of listing in Hong Kong are more flexible. The listing conditions stipulated by Chapter 8 of Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited include but not limited to: (a) having the business record not less than three accounting year, the profit within the latest year not less than HKD 20 million, the total profit within the former two years not less than HKD 30 million, and the market value of at least HKD 0.2 billion when listing; or (b) having the business records not less three accounting years, the profit within the latest year of HKD 0.5 billion at least, the total cash influx of operation activities in the former accounting 3 year is HKD 0.1 billion at least, the market value when listing is HKD 2 billion at least; or (c) having the business record not less than three accounting year, the profit within the latest year not less than HKD 0.5 billion, and the market value of at least HKD 4 billion when listing, and the number of stockholders of not less than 1000 when listing.
    [25] See Article 20 of the Special Provisions and Article 103 of PRC Company Law (2005 Revision).
    [26] Article 4 of the PRC Arbitration Law (Adopted at the Ninth Session of the Standing Committee of  the Eighth National People's Congress on August 31, 1994, promulgated on the same day, and effective as of September 1, 1995) provides that: “The parties adopting arbitration for dispute settlement shall reach an arbitration agreement  on  a  mutually  voluntary  basis.  An arbitration commission shall not accept an application for arbitration submitted by one of the parties in the absence of an arbitration agreement.” Article 145 of the PRC General Principles of the Civil Law (Adopted at the Fourth Session of  the Sixth National People's Congress on April 12, 1986, promulgated on the same day, and effective as of January 1, 1987) provides that: “The parties to a contract involving foreign interests may choose  the  law applicable  to  the settlement  of  their  contractual  disputes,  except  as otherwise stipulated by law”; and Article 146 requires that: “The law of the place where an infringing act is committed shall  apply  in handling compensation claims for any damage caused by  the  act. ”
    [27] See Article 5 of the Measures for the Reduction of State-owned Shares and Article 5 of Executive Measures for the Transferring of State-owned Shares for Raising National Social Security Funds (jointly promulgated in Cai Qi [2009] No.94 by the Ministry of Finance, the SASAC, the CSRC and the NCSSF on June 19, 2009). At the beginning, the reduction of state-owned shares shall operate during both A-share issue and H-share issue. By reason of negative reflections appear in domestic stock market after the implementation of the Measures for the Reduction of State-owned Shares, the PRC State Council stop the reduction of state-owned shares in domestic market in June, 2002.
    [28] See Article 55 of the Mandatory Provisions.
    [29] See Article 103 of the PRC Company Law (2005 Revision), and Articles 54 and 55 of Guidance on the Articles of Association of Listed Companies (2006 Revision) (promulgated in Zheng Jian Go Si Zi [2006] No.38 by the CSRC on March 16, 2006, hereinafter the 'Guidance on the Articles of Association').
    [30] See Article 93 of the Mandatory Provisions.
    [31] See Article 118 of the Guidance on the Articles of Association.
    [32] By the end of 2009, there have been 70 H-share companies simulatenously listed on the SHSE or on the SZSE.
    [33] See Regulation on the Approval by the Federal Service for Financial Market of Offerings and/or Trading of Securities of Russian Issuers Outside the Russian Federation, approved by Order No. 06-5/pz-n of FSFM Russia, dated January 12, 2006.
    [34] See M. Tison, 'Unravelling the General Good Exception: The Case of Financial Services' in M. Andenas & W. H. Roth eds., Services and Free Movement in EU Law(Oxford University Press, 2002) , 352.

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