China will still allow IPOs in the United States, securities regulator tells brokerages

Finance
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A vehicle from electric car maker NIO sits outside of the New York Stock Exchange (NYSE), September 12, 2018 in New York City.
Drew Angerer | Getty Images News | Getty Images

China will continue to allow Chinese companies to go public in the U.S. as long as they meet listing requirements, China’s securities regulator told brokerages late Wednesday, according to a source familiar with the matter.

A series of regulatory actions in the last few weeks has heightened investor concerns that Beijing is trying to block foreign capital flows into Chinese assets.

The cross-border stock listings can also occur using the variable interest entity structure, the source said, citing the regulator. It refers to a legal structure which allows international investors to access shares of Chinese companies in the U.S.

The regulator recognized the structure is a vital way for companies to attract foreign capital, but said it would have to be adjusted if there were national security concerns, said the source, who requested anonymity due to the sensitivity of the matter.

China Securities Regulatory Commission Vice Chairman Fang Xinghai held a virtual meeting with major investment banks on Wednesday, the source said. It followed days of sharp selling in Chinese stocks on fears of increased regulatory crackdown by Beijing.

Bloomberg first reported news of the meeting.

Chinese stocks listed in Asia and the U.S. — including big names like Alibaba and Tencent — plunged in the last several days as Chinese authorities increased scrutiny on tech companies over monopolistic practices and data security.

A policy document that began circulating widely Friday called for Chinese after-school tutoring companies to become non-profits, sending the stocks plunging by double-digits in Hong Kong and the U.S.

The policy specifically banned tutoring companies from raising money through the stock market or having foreign investors, particularly through the variable interest entity legal structure that allows international investors to access Chinese shares.

The speed and breadth of the policy surprised many. Goldman Sachs on Monday downgraded Chinese education stocks on expectations the after-school tutoring market would “shrink significantly” — to less than one-fourth its current $106 billion size.

However, the securities commission’s Fang said the policy was intended to reduce the burden on parents — not shut off foreign investment — and the education companies will have as much time as needed to restructure, according to the source.

The securities regulator did not immediately respond to a CNBC request for comment.

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