Preserving listing status against delisting red line

Revised delisting rules adopted in 2024 by the Shanghai, Shenzhen and Beijing stock exchanges ushered in their first complete examination cycle during the 2025 annual reporting season. By 9 May 2026, 13 listed companies had breached financial delisting thresholds and been served with pre-termination notices by the exchanges.

In 2026 to date, 141 listed companies across the market have received delisting risk warnings or other risk warnings, with 81 of those cases attributed to failure to satisfy financial requirements.

Warning thresholds

Listing rules across the Chinese mainland’s three exchange boards set three grounds when a delisting risk warning is imposed.

1. Composite financial metrics, meaning negative audited profit in the latest financial year, coupled with post-deduction revenue below the relevant exchange threshold – RMB300 million (USD44.3 million) on the Shanghai and Shenzhen main boards; RMB100 million on ChiNext and the Star Market; and RMB50 million on the Beijing Stock Exchange. Statistics indicate that this set of financial indicators now represents the most significant delisting risk for A-share listed companies.
2. Net assets audited negative at the end of the most recent financial year.
3. Audit opinion as either a disclaimer of opinion or an adverse opinion from the auditor in the company’s financial report for the latest accounting year.

Notably, “post-deduction revenue” under the composite financial metrics requires stripping out income unrelated to the company’s principal business and revenue arising from transactions lacking commercial substance. The determination of what falls within this scope has become a key area of contention in annual audits.

Relief avenues

For listed companies and their controlling parties up against the financial delisting red lines, seven rescue pathways are commonly available.

Scaling up current business lines at the expense of margins to protect top-line revenue. In the near term this may lift reported revenue, but where gross margins are extremely low or negative, the going-concern basis of the operation is likely to face scrutiny, and the associated revenue may be deducted for want of commercial substance.

Forming joint ventures or strategic alliances to tap external business streams. This approach works best in sectors where qualification thresholds and supplier onboarding requirements are less demanding. Close scrutiny of counterparty independence and transaction substance is essential to avoid dealings with entities that turn out to be related parties or shell companies.

Purchasing a majority interest in a business within the same industry. This strategy can consolidate financials to lift reported revenue and/or profit.

Growing the business via a leasing model. This approach raises significant questions over operational independence, asset ownership and viability as a going concern. Companies should rigorously evaluate whether the leased assets can underpin a sustainable business model. Infund Holding serves as a relevant example.

Entering bankruptcy restructuring. Where a listed company has negative net assets and is engulfed by a debt crisis, as in the case of real estate developer *ST Jinke, court-supervised restructuring can provide an effective legal route to resolving the company’s predicament. NB: In Chinese mainland stock markets, the abbreviation “ST” attached to certain companies stands for Special Treatment, indicating special attention due to abnormal financial or operational conditions such as consecutive years of losses. The asterisk * attached to it indicates an official warning of delisting.

Receiving gifts of assets. Where a controlling shareholder or related party donates assets without consideration (for example *ST Zhongdi), provides cash or forgives debt (as with *ST Jianyi), the listed company’s net asset position and earnings may be strengthened directly.

Carving out or selling substantial assets. Offloading loss-making operations at a token price of RMB1 or even zero to stem losses and repair the balance sheet offers a quick fix for listed companies with negative net assets seeking to improve their financial indicators. One example is *ST Langold.

Case studies

Several notable cases of failed shell-preservation efforts emerged from the 2025 annual reporting season, offering cautionary lessons that deserve close examination.

*ST Prosolar. In a number of projects, customers and suppliers were found to share equity links and identical contact information, suggesting possible issues with the recognition of contract progress and the period allocation of costs and revenue. As regulatory compliance of the revenue could not be verified, the attempt to preserve the listing status ended in failure.

*ST SaiLong. A hasty entry into the AI server business in 2025 was expected to deliver post-deduction revenue of RMB300 million, but the operation raised serious red flags. Virtually all revenue was booked in December; there was no R&D expenditure and a clear mismatch between personnel and facilities; business, goods and cash flows were abnormal, including acceptance dates that fell before shipment dates; and sales receipts appeared to circulate in a closed funding loop.

What unites these cases is revenue recognition devoid of commercial substance, a clustering of revenue in the final reporting period and hidden related-party dealings.

To address financial delisting risks from a compliance perspective, listed companies should observe at least the following four guiding principles:

Revenue must be firmly tied to the core business. Any revenue intended to preserve the listing status should be within the company’s permitted scope of operations and consistent with its existing business model. A sudden leap into unrelated industries should be avoided.

Transactions must demonstrate complete commercial substance. This requires authentic flows of goods and funds, proper contract performance and a robust trail of external evidence. Circular capital flows and closed-loop cash movements must be eliminated.

Consult auditors on feasibility ahead of time. Early discussions with auditors should cover revenue recognition policies, the standards for determining deductible items and the audit evidence needed.

Steer clear of concentrated period-end revenue recognition. Revenue should be recognised evenly over the course of the year in a manner consistent with the characteristics of the industry. A heavy fourth-quarter skew can easily trigger regulatory attention.

Takeaway

The new delisting regime has sharply eroded the speculative value of A-share shell vehicles, while financial delisting thresholds are now enforced with far greater rigidity.

Rather than venturing into risky manoeuvres at the brink of delisting, listed companies and their ultimate controllers would be better served by engaging professional advisers at an early stage to design a turnaround strategy that respects both commercial substance and regulatory boundaries.

In the end, enduring access to the capital markets rests not on hasty shell-preservation tactics but on building a genuinely sustainable business.

Xu Zhiyuan is a partner at Tahota Law Firm. He can be contacted by phone at +86 28 8662 5656 and by email at zhiyuan.xu@tahota.com