(March 17): Beijing is restricting Chinese companies incorporated overseas from seeking initial public offerings (IPOs) in Hong Kong, according to people familiar with the matter, threatening to upend a decades-old playbook that has fuelled billions of dollars in share sales.
While stopping short of an outright ban, regulators have recently discouraged IPO applications from so-called red-chip firms — entities registered outside China but which hold assets and businesses within it, said the people, who asked not to be identified discussing private matters. Some companies have already been asked by the Chinese securities regulator to overhaul their structure before proceeding with Hong Kong listings.
Chinese authorities are encouraging companies to reorganise under mainland incorporation instead, the people said. Most Chinese-related entities need to file with the China Securities Regulatory Commission before listing in Hong Kong.
The move comes as Chinese regulators look to strengthen oversight and simplify compliance following a flurry of IPOs in Hong Kong over the past year. Officials are also concerned about rising risks of capital flight through such listings, one of the people said.
The CSRC didn’t immediately respond to a request for comment.
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The latest regulatory guidance is stirring anxiety among companies, investment banks, legal advisers and overseas investors, the people said. Unwinding a red chip structure would require transferring ownership of domestic operating companies back onshore, which could trigger large costs, the people added.
Investors could also face a loss of flexibility as red chip entities allow backers to make use of flexible capital arrangements such as weighted voting rights. Foreign venture capital and private equity funds will face more complicated exit routes investing in mainland incorporated companies. Repatriating capital from a domestic Chinese entity requires navigating strict State Administration of Foreign Exchange regulations and longer lock-up periods, the people added.
For years, it has been a common practice for state-backed and private firms to set up companies in jurisdictions such as the Cayman Islands and British Virgin Islands, and inject domestic assets into these vehicles before raising funds in Hong Kong or the US. China Mobile Ltd and Cnooc Ltd are among the flagship companies that have taken this route for Hong Kong IPOs.
See also: Hong Kong to expand ‘name and shame’ list to IPO lawyers
Regulators have stepped up oversight of Hong Kong’s IPO and financial markets since the end of last year, looking closer at licensing amid concern over deal quality. The securities watchdog has also lambasted banks for not having enough staff.
First-time share sales in Hong Kong hit a four-year high in 2025, and the market is off to its busiest-ever start this year. There is plenty more to come: At the end of January, there were more than 400 companies in the pipeline, according to data from Hong Kong Exchanges & Clearing Ltd. Proceeds in the market may reach a six-year high of US$45 billion ($57.56 billion), projects KPMG LLP.
The local regulator has asked banks for improvement plans and capped the number of deals principal bankers can sign off at one time. The city has also expanded its “name-and-shame” regime for sloppy listing applications to include law firms and auditors.
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