On August 1 at noon, China's CSRC responded to the latest statements from the U.S. SEC and its decision to strengthen regulatory oversight of Chinese-listed companies, answering questions from reporters.

Q: Recently, the U.S. Securities and Exchange Commission (SEC) issued a statement increasing information disclosure requirements for Chinese companies seeking U.S. listings. What is the China Securities Regulatory Commission’s comment on this?

Answer: As the capital markets of China and the U.S. continue to grow increasingly interconnected—given their status as globally significant markets—more and more companies, investors, and financial institutions are actively engaging in each other’s markets. Strengthening regulatory cooperation has thus become an inevitable choice. We have noted the recent statement from the U.S. Securities and Exchange Commission (SEC), particularly its introduction of new requirements regarding information disclosure for listed companies. Moving forward, regulators in both countries should remain committed to a spirit of mutual respect and win-win collaboration, enhancing communication on the regulation of Chinese concept stocks to jointly identify effective solutions. This will help foster positive policy expectations and create a robust institutional environment that benefits both markets.

We have always maintained an open attitude toward companies choosing their listing locations, supporting them in complying with both international and domestic market regulations as required by law. Regardless of where a company lists, it must adhere to the relevant laws, regulations, and regulatory requirements of its listing and operating jurisdictions. Currently, Chinese authorities are implementing standardized management practices across certain industries, aiming to balance development with security and fostering the sustained, healthy growth of market participants. In the process of formulating and enforcing these policies, the China Securities Regulatory Commission (CSRC) will maintain close communication with relevant departments, further ensuring a harmonious alignment of interests among investors, enterprises, and regulators—while also enhancing the transparency and predictability of policy measures.

China remains firmly committed to its fundamental national policy of advancing reform and opening-up, and the country will continue to deepen its financial sector’s openness to the outside world. Moving forward, China will introduce more practical measures to further open up its markets, fostering high-quality development of the Chinese capital market.

Since the beginning of this year, China’s economy has continued to recover steadily, showing consistent improvement amid stability. A growing number of outstanding companies are thriving, while the capital markets are seeing an increasing pool of high-quality investment opportunities. As long as listed companies maintain strong business performance, uphold high standards, and foster a continually improving ecosystem, they’re bound to attract investors’ attention. Overall, we remain confident in the promising outlook for China’s capital markets—predictable, sustainable, and poised for healthy, long-term growth.

On July 30, U.S. local time, SEC Chairman Gary Gensler issued a statement outlining new disclosure requirements for Chinese companies seeking to list in the U.S., with a particular focus on Chinese firms listed via the VIE structure. The new requirements mandate that issuers clearly distinguish between shell companies and their China-based operating entities, explain whether the financial performance of the operating company could be affected by Chinese government regulations, and also disclose the financial relationship between the VIE and the issuer.

Reuters also reported earlier in the day that "the SEC has halted processing IPO registrations for Chinese companies in the U.S."

Following this, Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC), issued the above statement, explaining that "due to China's recent tightening of regulations on companies seeking U.S. listings, Chinese firms planning to list in the U.S. will now need to enhance their disclosure practices and clearly outline associated risks." He thereby denied any claims that Chinese companies' U.S. listings had been halted.

In the statement above, Gary Gessler outlined the risks associated with Chinese companies listing through Variable Interest Entity (VIE) structures. He explained that under this arrangement, a China-based operating company typically sets up an offshore shell company in another jurisdiction, such as the Cayman Islands. This shell company then enters into service and other contractual agreements with the China-based operating entity before issuing shares on exchanges like the New York Stock Exchange. Although the shell company holds no equity stake in the China-based operating company, for accounting purposes, it can consolidate the operating company into its financial statements.

Gessler argues that, for U.S. investors, while shell companies are linked to domestic Chinese firms through a series of service and other contracts, neither the investors in the shell company's stock nor the offshore shell company itself holds any equity in the Chinese operating entity.

The SEC believes that, given China's recent tightening of regulations on U.S.-listed companies, Chinese firms planning to list in the U.S. in the future must further enhance their disclosure practices and clearly outline associated risks.

Following this, the SEC addressed the recent suspension of Chinese companies' IPOs in the U.S., citing "China's recent developments" and the risks associated with the VIE structure. In response, Gensler introduced three new requirements.

1. The issuer must clearly inform investors that the shares they are purchasing do not represent stock in the Chinese operating company, but rather in a shell company that has a service contract with it. Therefore, when describing its business activities, the issuer must explicitly differentiate between the shell company and the Chinese operating entity.

2. The issuer must disclose whether future actions by the Chinese government could significantly impact the operating company’s financial performance and its ability to fulfill contractual obligations.

3. The issuer must provide detailed financial information, including quantitative metrics, to help investors understand the financial relationship between the VIE and the issuer.

Jennsler also introduced two new requirements for all China-based companies seeking SEC registration, regardless of whether they use the VIE structure or not.

1. The issuer must disclose whether the operating company or the issuer itself has obtained approval from Chinese authorities for the company’s U.S. listing, as well as the risk of such approval being denied or revoked. If the approval is revoked, this fact must also be disclosed.

2. The issuer must clearly disclose that, under the Foreign Company Accountability Act, the Public Company Accounting Oversight Board (PCAOB) has the authority to inspect the issuer’s public accounting firm within three years. If the PCAOB is unable to conduct the inspection, the company may face delisting.

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