Beijing is increasingly scrutinizing “red-chip” initial public offerings with an aim to close longstanding regulatory loopholes embedded in this listing structure, lawyers and bankers told this news service.

Inability of Chinese authorities to effectively govern the offshore part of red-chip enterprises is believed to have triggered the policy shift, a first lawyer said.

Beijing may also seek to discourage US funds from investing in China’s strategically crucial sectors amid a global AI race, and to curb capital outflows, as bilateral geopolitical tensions continue, the advisors added.

The China Securities Regulatory Commission (CSRC) has recently asked some Chinese IPO candidates with a red-chip structure to relocate their domicile to China, before it approves an overseas listing application.

According to CSRC’s latest update on 20 March, red-chip IPO candidates in the pipeline include butcher and grocery store chain Qdama, hotpot chain BANU, and cosmetics brand CHANDO Global.

IPOs involving red-chip companies are also known as indirect listings, under which the companies typically establish an offshore holding entity (typically in the Cayman Islands or BVI) housing their onshore assets for public listings overseas.

Red-chip IPOs, which are rare these days, have been around for over two decades. Many of the country’s back then innovative companies, such as social media platform SINA (2000) and e-commerce giant Alibaba (2014), managed to get listed in the US via a red-chip structure.

This avenue has nonetheless become an eyesore for Chinese regulators these days as China-US tensions continue.

The CSRC started telling “red chip” IPO candidates to restructure their assets last year, a banker said. The order has targeted both filings under review and new filings, the first lawyer said.

Alternatively, Chinese firms can use a domestically incorporated entity to list at home or overseas, under a direct listing structure.

Direct listings will be a new norm, with few exceptions of indirect listing, the lawyer said.

Real-time governance  

Meta’s acquisition of Manus has showcased that it is very difficult for the Chinese government to regulate a company on a real-time basis, when it is headquartered overseas, the lawyer said.

Manus is an AI start-up originally incorporated in China but moved to Singapore in recent years.

In the Manus/Meta case, China’s Ministry of Commerce (MOFCOM) announced on 8 January it would review the transaction, days after the deal parties announced the completion of the deal on 29 December 2025.

As of now, MOFCOM has yet to publish any official review decisions on the case, although the New York Times reported in March that individuals associated with the deal may face penalties from China’s National Development and Reform Commission. And this week (25 March), another media outlet further reported that the two co-founders of Manus have been restricted from travelling abroad.

A red-chip company is less likely to trigger ex ante regulatory procedures in China, and it is hard for China to regulate in a meaningful way ex post, the first lawyer pointed out.

As H-share companies are incorporated in China, Chinese authorities can exercise direct regulatory oversight at the listed company level, said Frank Bi, Head of Asia Corporate Transactions Practice at Ashurst.

Apart from shareholding transparency and straightforward regulatory oversight, Beijing’s upgraded scrutiny on red-chip firms also comes from the government’s goal to keep its crucial assets onshore – away from offshore capital holdings – a second banker said.

Regulatory oversight has focused in particular on sectors such as AI (data, models and computing) and biotech (genes, cells and clinical data), the second banker added.

But China’s latest policy shift may complicate private-equity exits, forcing investors to reassess long-standing offshore playbooks, Mergermarket reported.

If a foreign investor seeks to exit an H‑share entity, as a shareholder in a China‑incorporated company, the exit may be subject to China’s foreign‑exchange regulations, a third lawyer explained. Therefore, by encouraging a direct listing structure, Chinese authorities would gain better visibility over foreign investors’ exits from Chinese companies, the lawyer added.

Listing destinations not key concern

As Beijing’s policy considerations are less about listing destinations and more about enhancing regulatory oversight, the discouragement of red-chip structure likely applies to both HK IPO candidates and US IPO candidates, the lawyers and bankers said.

A direct listing structure could also solve the US securities regulator’s concerns over the effectiveness of the Cayman or BVI holding entity’s control over the domestic business operator in a red-chip model, the first lawyer said.

Source: Han Kun Law Offices citing CSRC data

And getting a CSRC greenlight for US listing has become increasingly difficult; “the gate (for US listings) is basically locked up for now,” a fourth lawyer said.

Calls to CSRC’s press office were not answered.