As members of the first group of Chinese lawyers to visit the US after the end of the pandemic, the authors had the opportunity to exchange information with experts, scholars and senior executives of top US law firms, universities and corporations on Chinese enterprises listing in the US in the context of current Sino-US relations.
Although the trade war, technology war and other political factors and geopolitical risks since 2018 have had a certain impact on the Sino-US investment sector, nevertheless numerous Chinese enterprises are still seeking the opportunity to list in the US. This article discusses what types of Chinese enterprises are suitable for listing in the US in light of the current Sino-US relationship, and what points they should pay attention to when seeking such a listing.
Pursuant to regulations of the China Securities Regulatory Commission (CSRC), where an enterprise is involved in a key sector such as national security, culture, resource development, etc., it may not list abroad in any manner, whether directly or indirectly.
Additionally, due to the escalation of the Sino-US trade war, the US government has stepped up its scrutiny of the auditors, law firms and other institutions serving Chinese enterprises that wish to list in the US, and made the requirements on these enterprises in terms of information disclosure, corporate governance, etc., more stringent.
Furthermore, relevant regulations, bills and systems such as the Foreign Investment Risk Review Modernisation Act (FIRRMA) and Holding Foreign Companies Accountable Act (HFCAA), have been issued to intensify the scrutiny and restrictions on Chinese enterprises in US capital markets, bringing a great deal of uncertainty and pressure on their listings there.
In such a complex environment, what types of Chinese enterprises are suitable for listing in the US?
- Traditional industries, particularly those related to consumer goods. Since the implementation of a comprehensive registration system by the CSRC, certain traditional consumer industries such as wine, beverage and refined tea manufacturing, textiles, accommodation and catering face restrictions on domestic listings. Enterprises within these sectors often exhibit robust cash flows, stable profit capabilities and high-quality asset structures, making them viable candidates for listing in the US.
- Healthcare industry. Both China and the US face the pressure of ageing populations and escalating medical costs. Hence, ongoing technical and commercial co-operation between the two countries in high-end medical equipment and pharmaceutical R&D offer significant opportunities.
- Financial services industry. The opportunities for Chinese fintech enterprises to conduct IPOs in the US should not be underestimated, with these enterprises mainly focused on such areas as payments, insurance, investment, etc.
- Renewable energy industry. The shared commitment of China and the US to addressing climate change has driven increased investment in renewable energy. Accordingly, Chinese renewable energy enterprises also have the opportunity to seek growth with the help of US capital markets.
It should be emphasised that in addition to satisfying the above-mentioned industry requirements, enterprises seeking to list in the US must satisfy the requirement of high growth. This signifies that an enterprise has already established a strong foothold in the domestic market and has a global strategy.
Against the backdrop of the current Sino-US relationship, an enterprise considering a listing in the US needs to pay particular attention to the following risk points:
- Policy risks. Escalating issues such as Sino-US trade friction and technology security have led the US government to implement a series of restrictive measures against China;
- Regulatory risks. The US government is gradually tightening its regulation and scrutiny of Chinese enterprises;
- Economic environment risks. In recent years, the US economy has shown sustained deceleration, and its social and political environments have become increasingly volatile. These factors introduce uncertainties and risks for Chinese enterprises considering US listings;
- Legal risks. The laws and rules involved in a US listing are rather complex, making it imperative for Chinese enterprises to understand and comply with US laws and regulations while also paying attention to the risks posed by the local legal environment and litigation costs;
- Antitrust risks. A Chinese enterprise investing in the US must pay close attention to local antitrust laws, regulations and law enforcement measures to ensure compliance and avoid contravening relevant regulations; and
- Anti-corruption risks. As the central government is exercising stricter regulation over overseas investments and financial transactions, enterprises must be vigilant to avoid being sucked into a vicious cycle.
In short, Chinese enterprises embarking on US listings are venturing into a realm of both risk and opportunity. Given the frequently fluctuating dynamics of the Sino-US relationship, enterprises need to be extremely cautious, conduct in-depth risk assessments, strengthen risk management and due diligence, and take the appropriate preventive and management measures.
An enterprise needs to fully consider its own financial and business position, understand the US market and regulatory environment, and seek the assistance of a professional investment bank or lawyers. It is imperative for all enterprises, regardless of type, to comply with relevant laws and regulations, coupled with showing a high level of transparency and integrity, to ensure successful listings on US stock exchanges.
Huang Xingwang is a partner and Liu Yao is an associate at Grandway Law Offices
Grandway Law Offices
7-8/F News Plaza
No. 26, Jianguomennei Avenue
Beijing, 100005, China
Tel: +86 10 8800 4488
Fax: +86 10 6609 0016