CHINA’S securities regulator is looking to expand its scrutiny of overseas listings by offshore incorporated firms to include initial public offerings (IPOs) in Hong Kong, people with knowledge of the matter said.

The China Securities Regulatory Commission (CSRC) has already been setting up a team to focus on firms seeking to list offshore using the so-called variable interest entity (VIE) corporate structure which the government says has led to abuse.

But some market participants had not expected the scrutiny to be extended to such firms seeking to list in Hong Kong, a preferred venue for companies in the world’s second-largest economy to raise capital offshore.

However, under the new rules being drafted, the CSRC will not exclude Hong Kong-bound mainland companies with a VIE structure from seeking approval, the people said.

The move may make it more challenging for mainland firms looking for a venue closer to home amid tighter checks in the United States, another top destination for offshore floats.

There is no timeline for the unveiling of the new guidelines, the sources added.

The VIE structure was created two decades ago to circumvent rules restricting foreign investment in sensitive industries such as media and telecommunications, enabling mainland companies to raise funds overseas via offshore listings.

It has been widely adopted by China’s new economy companies, mainly internet firms, that are generally incorporated in the Cayman Islands and British Virgin Islands and therefore fall outside China’s legal jurisdiction.

Under the existing rules, mainland companies with a VIE structure do not have to seek formal regulatory approvals for IPOs in the United States or in Hong Kong, and can bypass the scrutiny and lengthy IPO vetting process that locally-incorporated companies have to go through.

There have been US$35.3 billion in IPOs in Hong Kong in 2021, of which mainland firms accounted for 96.3 percent, according to Refinitiv data. The value of deals is up from US$22.76 billion from a year earlier, the data showed. (SD-Agencies)