China’s regulator widens pilot scheme to attract red chip companies to raise funds at home in Shanghai or Shenzhen

The China’s securities watchdog has broadened fundraising avenues for offshore-incorporated Chinese companies, or red chip firms, analysts said

Many of China’s top tech firms are already listed offshore as red chips, as firms like Baidu, Xiaomi form new economy sector fuelling 18 per cent GDP

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The first batch of registration-based initial public offerings of enterprises debuted on the ChiNext board on the Shenzhen Stock Exchange on August 24, 2020. Photo: Xinhua.

Published: 10:39pm, 20 Sep 2021Updated: 9:01am, 21 Sep 2021

China’s securities regulators are rolling out the red carpet for technology and strategically important companies to raise capital onshore, expanding the scope of a 2018 pilot scheme for so-called red chips to list in either Shanghai or Shenzhen.

Red chips – companies whose businesses are based in mainland China but are incorporated offshore – in seven new eligible sectors will be allowed to issue either shares or Chinese depositary receipts in the two Chinese exchanges, according to a Friday statement by the China Securities Regulatory Commission (CSRC). The new sectors are information technology, new energy, new energy vehicles (NEVs), new materials, environmental protection-related businesses, aerospace and marine equipment, adding to seven existing sectors first announced in 2018.

The widening of the pilot scheme marks a vital step in the Chinese government’s plan for local institutions, asset management funds and individual investors to reap the capital gains from China’s growth champions, particularly technological start-ups that had been the paragons of wealth creation.

“Regulators are identifying different fundraising avenues for the tech sector,” said China Renaissance’s head of macro and strategy research, Bruce Pang. “While they want to supervise the approval procedures of offshore listings in a more manageable way, they also acknowledge that there is a genuine funding demand for Chinese tech companies.”

Global stock exchanges from New York to Hong Kong have been competing to help red chips raise capital, a race that Hong Kong has won in seven of the past 12 years. Now, Chinese authorities are ready to overhaul their listing rules for more tech companies to raise funds in the onshore “home market,” analysts said.

The first red chips were Chinese state-owned companies that were registered in Hong Kong, like China Mobile, Cnooc Limited and Citic Limited, which are subject to the city’s laws and regulations. As of August 31, the Hong Kong stock exchange listed 171 red chips valued at a combined HK$4.98 trillion (US$639.7 billion), of which Shenzhen International Holdings was the first, listed in September 1972.

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