China tightens rules on offshore restructurings

Author: | Published: 1 Apr 2005

It has been common practice in China in recent years for domestic private enterprises to undergo offshore restructurings as a prelude to seeking offshore private equity financing or public offerings. Such restructurings have been particularly attractive to Chinese enterprises, because they can raise capital and list overseas with minimal domestic regulatory requirements.

This is expected to change. A recent attempt by the State Administration of Foreign Exchange (Safe) to strengthen its regulation of offshore restructurings, and thus broaden its supervisory scope, has imposed some notable regulatory hurdles.

For example, domestic residents of China must now seek approval from, and register with, the relevant Safe branch before they may, directly or indirectly, set up or take control of a company offshore. Previously, the approval and registration requirements only applied to legal entities or economic organizations established in China. The regulatory loophole for individuals to structure their shareholdings offshore without the need for approval from Safe no longer exists....