China’s Development and Regulation of Cross-border Listings: Policies, Practices and Prospects

Capital markets have become increasingly globalized, with major international financial centres engaged in fierce competition to attract listings of foreign companies. There has been a longstanding debate on the benefits and risks of cross-border listings and regulatory approaches towards them. As the world’s second-largest economy, China is home to many companies seeking listings across borders. These overseas-listed Chinese companies, dubbed ‘China Concept Stocks’ or ‘Red-Chip Stocks’, have played a significant role in host markets, with important implications for international securities regulation. It is thus critical to properly understand China’s development and regulation of cross-border listings, particularly at a time of ongoing and escalating geopolitical tensions. 

To start with, my new book, China’s Development and Regulation of Cross-border Listings: Policies, Practices and Prospects (Cambridge University Press, 2026), tries to answer why Chinese companies seek cross-border listings. Under the legal bonding theory, when a company cross-lists in a foreign market, it effectively bonds itself to the more robust regulation of the listing place, which may help enhance its corporate governance and business performance. The overseas listing of Chinese companies offers a good case study due to the disparity between China’s regulatory regime and those in the listing places. However, existing empirical research shows ambiguous or, at best, weak effects of legal bonding. This calls for a closer examination of how to interpret these available empirical results and why the legal bonding is not as strong as expected. 

Three factors can be identified to help explain the empirical anomaly. Firstly, technical or methodological issues, such as selecting the research period and case samples, may contribute to the lower-than-expected bonding effect, as China has been continuously improving its regulatory regime, and the bonding effects tend to be stronger in the early years. Secondly, the bonding effects may also be impacted by political-economy considerations of stakeholders involved in overseas listing processes of Chinese companies. In recent years, geopolitics has increasingly impacted international financial regulation. Thirdly, and most importantly, some specific regulatory issues may have seriously hindered the functioning of the legal bonding mechanism in various ways. This has important implications for the understanding and evaluation of the relevant Chinese law and policy in the area.  

Since the early 1990s, in line with its gradualist approach to reforming its economy and society at large, China has made efforts to strengthen its regulatory regime for overseas listing of domestic enterprises. While China continues to welcome foreign investment and facilitate overseas listing of Chinese companies, it has put more emphasis on national security issues, such as foreign investment security, cyber security, and data security. China has gradually established a national security review of foreign investment and has recently tried to improve its enforcement. There are many factors affecting China’s national security review regime for foreign investment, including international geopolitical issues and China’s state or party capitalism at the domestic level.  

At the same time, China has recently introduced Article 2(4) of the 2019 Securities Law to deal with the issue of extraterritorial jurisdiction over cross-border securities transactions which are conducted overseas but may harm Chinese capital markets or investors. While it represents an important development, the provision is couched in very broad terms, making its application uncertain in practice. The recent high-profile case of Luckin Coffee shows the factors that China may consider in applying Article 2(4), including the test of national interests, the principle of international comity, and the issue of judicial recourse constraints.   

Importantly, China introduced a comprehensive filing regime for all overseas-listed Chinese companies in 2023, which has unified the supervision of direct and indirect overseas listings of Chinese companies and strengthened information disclosure. This regime increases transparency of overseas listing activities, certainty in regulatory compliance, and cross-border regulatory coordination. However, there remain significant challenges in the implementation of the new regime. 

First, to properly regulate cross-border listings, the regulators of the host market need to have access to relevant auditing documents, particularly audit working papers, but this may conflict with the need of the home jurisdiction to protect sensitive information. Indeed, until recently, this legal conflict produced serious disputes between Chinese securities regulators and their counterparts in the US and Hong Kong. Under the ‘one country, two systems’ framework, Hong Kong regulators and Mainland China regulators successfully entered into several agreements for regulatory cooperation in 2019. In comparison, the China-US audit dispute presents a much more difficult issue. Only after the US Congress intervened to pass the Holding Foreign Companies Accountable Act in 2020 could the US regulators finally reach an agreement with Chinese regulators in 2022. This is a good start, but given the China-US geopolitical tensions, it remains to be seen whether the China-US 2022 Agreement will be implemented effectively.

Second, the legality of the variable interest entity (VIE) structure has long been a subject of contention since it was first used by Chinese companies to list overseas in the early 2000s. The VIE structure allows foreign investors to participate in overseas-listed Chinese companies through contractual control rather than a shareholding relationship, thus bypassing relevant restrictions on foreign investment in China. China has adopted a policy of strategic ambiguity about the legality of the VIE structure, balancing the need to protect national security with facilitation of overseas listings by Chinese companies. There are institutional reasons behind this policy, including interest group politics of regulatory agencies and the rent-seeking activities of regulatory officials. The policy of strategic ambiguity will likely continue in the foreseeable future, and so will the uncertainty over the legality of the VIE structure. However, the level of uncertainty is not as high as suggested by commentators arguing that there is no legal protection for investors in relation to the VIE structure. 

Third, regulatory cooperation is crucial to facilitate detecting, investigating and prosecuting cross-border securities misconduct. Mainland China-Hong Kong cooperation provides a case study. While the cooperation has made good achievements, there remain many important issues, which can be broadly divided into two categories: substantive rules on the definitions of market misconduct and penalties for such misconduct; enforcement mechanisms in relation to information exchange, regulatory architecture and extradition arrangement. Substantive rules should be harmonized and the enforcement mechanisms unified to the extent possible.

Fourth, as overseas-listed Chinese companies usually have their main assets located in China, it is important that Chinese courts recognize and enforce foreign securities judgments. However, there are many difficulties in this area. It may be possible to sue Chinese companies in the offshore financial centres where they are incorporated, though there would be similar issues with judgment enforcement in China. Arbitration is likely a supplement rather than substitute for court litigation in resolving securities disputes. China should consider signing a bilateral treaty with the US to clarify the principle of reciprocity. Hong Kong is also advised to expand its current judgment recognition arrangement with Mainland China to cover securities judgments and join the relevant international conventions.

Finally, the issue of inbound listings (foreign companies getting listed in China) is critical to the internationalization of the Chinese capital market. Since 2018, China has launched a pilot program to allow the listing of ‘red-chip companies’, which are established by Chinese people in offshore financial centres and are technically foreign companies. China should follow the Hong Kong model to grant preferential treatment only to those cross-listed in China and also learn from the US experience with American Depositary Receipts to enhance the utility of Chinese Depository Receipts. More fundamentally, the 2018 pilot program reflects China’s gradualist approach to economic reform, and in the long run, it will likely be expanded to cover more foreign companies. The prospect of China successfully achieving this goal will depend on a variety of factors, including political-economic factors and legal-regulatory factors. 

Going forward, there is a need for more research on the impact of the rise of geopolitics on China’s regulation of cross-border listings. In general, as geopolitical competition or conflict intensifies, states possess both the incentives and tools to ramp up their use of cross-border finance to advance their objectives. This gives rise to a variety of questions, both normative and empirical, and answering them requires a multi-disciplinary approach. This aims to spark public debate in this area, serving as a starting point for further research. 

The author’s book, China’s Development and Regulation of Cross-border Listings: Policies, Practices and Prospects (Cambridge University Press, 2026), is available here.

Robin Hui Huang is Chair Professor in the Faculty of Law, Courtesy Joint Professor in the Business School, Chinese University of Hong Kong.