China seeks more communication with US on overseas IPOs

BEIJING (BLOOMBERG) – China’s securities regulator called for talks with its American counterpart after the United States Securities and Exchange Commission (SEC) halted the initial public offerings (IPOs) of Chinese companies amid nearly a US$1 trillion (S$1.35 trillion) share sell-off last week.

The China Securities Regulatory Commission (CSRC) is seeking to step up communication with the SEC to find a suitable resolution, it said in a statement on Sunday (Aug 1), after the US regulator said it would suspend any Chinese IPOs until companies improved their risk disclosures. The Chinese watchdog called for mutual respect and collaboration on the issue.

In response to Beijing’s clampdown on private industry, SEC chair Gary Gensler asked staff to seek additional disclosures from Chinese firms before signing off on their registration statements to sell stock. China had earlier proposed new rules requiring virtually all companies wanting to list in a foreign country to undergo a cyber-security review, a move that would vastly increase oversight over its private enterprises.

Shares on the mainland and Hong Kong continued to drop on Monday. The Shanghai Composite Index fell 0.5 per cent while the Hang Seng Index declined 0.2 per centy as of 10am Hong Kong time. Tencent Holdings  and Meituan both lost more than 3 per cent.

The crackdown on overseas listings comes after Didi Global pushed ahead to list in the US, despite reservations from Beijing over the ride-hailing giant’s data security, Bloomberg News previously reported. Days after Didi’s debut, Chinese regulators announced a probe into the firm and removed its apps from Chinese mobile stores, driving a sell-off in the tech giant’s shares. The losses for American investors have fueled calls that the SEC increase oversight of Chinese IPOs.

China has all along adopted an open-minded approach to listing locations, the CSRC said, adding that the current scrutiny over certain industries is aimed at coordinating development and safety. The securities watchdog will carry out close communication with relevant departments to further improve transparency and predictability of policies.

The statement echoed comments made by CSRC vice chairman Fang Xinghai on a hastily arranged call with major international banks including Goldman Sachs Group and UBS Group last Wednesday, as the regulator attempted to ease market fears about Beijing’s crackdown.

It is also adding to signs that the Chinese authorities have become uncomfortable with a sell-off that sent the nation’s key stock indexes to the brink of a bear market. State-run media have published a series of articles suggesting the rout is overdone, while some analysts have speculated government-linked funds have begun intervening to prop up the market.

State-run Xinhua News Agency said in a commentary over the weekend China should properly handle the relationship between opening up and ensuring security in supervising Chinese companies’ overseas listings, and improving oversight is the necessary step to help prevent and resolve related risks.

In its Sunday statement, the CSRC also reiterated a pledge to open up the country’s financial industry and said that it sees the prospects for Chinese capital markets as predictable, sustainable and healthy.