Indicative of Chinese regulators’ caution in overseeing sensitive industries, industry sources say the move ensures that any sale of assets does not escape regulatory scrutiny.
And for any offshore incorporated structures that are approved, the stock regulator requires listing applicants to provide detailed explanations of foreign exchange arrangements and overseas investment procedures.
“Many biotech and tech specialist funds are offshore US dollar funds … adopting [red-chip] structure makes it easier [for these Chinese companies] to attract global investors,” said David Lau, vice-chair of investment banking for the Asia-Pacific region at JPMorgan Chase.
Many Chinese biotech and tech firms also favoured red-chip structures, which gave them “greater flexibility for partnerships, acquisitions, and business development with overseas entities”, he said. “This structure also helps them incentivise overseas employees, since many of these companies have extensive offshore operations.”
