The China Securities Regulatory Commission (CSRC) is considering guidelines to govern the status and regulation of red-chip listings and asset injections amid concern that uncertainty about its regulatory role could dampen the boom in red-chip stocks, mainland sources say. 'The central government has long been unhappy about lack of regulation over the red chips and their asset injections,' a source close to the mainland securities watchdog said yesterday. 'It wants to do something this time following the Gitic incident.' Last week, confusion reigned over whether the share offering of Gitic Enterprises would proceed after the CSRC said Gitic failed to obtain necessary approval before listing. Red chips are generally categorised as Hong Kong-incorporated and listed companies controlled by mainland parents. The interest in these shares has been fuelled by deals injecting parent-company assets into the Hong Kong offshoots. Another source said an option being considered by the CSRC was to make detailed rulings including defining the status of red chips and clarifying the circumstances under which it would need to grant approval for red-chip initial public offerings or asset injections. Both sources said, however, that the formulation of such rules would be difficult given the complexities and historical reasons. Some investment bankers also agreed there was a pressing need for the CSRC to clarify its role over regulation of red chips in Hong Kong. 'The CSRC has to make clear whether mainland asset injections by red-chip companies are under its regulatory control, and if so, make the guidelines black and white,' an investment banker with a foreign brokerage said. The rules governing red chips are considered vague, particularly when compared with direct listings on overseas exchanges by state-owned firms. Sources said many red chips such as China Resources were set up in Hong Kong decades before the CSRC was launched in the early 1990s, making it difficult for CSRC to claim regulatory control over them. Such well-established red chips usually seek approval from the Ministry of Foreign Trade and Economic Co-operation to inject mainland assets. DEFINING RED Government unhappy over lack of regulation over red chips and asset injections Gitic incident cited as catalyst for change Sources say move is to clear up grey areas in red-chip status
