CHINA Trends and Developments Contributed by: Steven Yu, Jeffrey Zhu, Jia Guo and Stella Jiang, Global Law Office
especially for applicants whose operating entities in Mainland China controlled by the VIE structure are engaged in business prohibited for foreign investment by applicable laws and regulations. The above can be seen from a lengthy filing period in 2025: in the first half of 2025, the average filing period for applicants with the VIE structure that completed the CSRC filing was 390 days, which is significantly longer than the average filing time for direct listings or indirect listings without the VIE structure during the same period and is also longer than the filing time for applicants with the VIE structure in history, which is 283 days for 2024. Based on our observation, issuers with the VIE struc - ture that have completed the CSRC filing are mainly concentrated in the software and information services, internet, data infrastructure, insurance brokage, travel, logistics and medical industries, among others. The main business areas that may involve foreign capi - tal prohibition or restriction include value-added tel - ecommunications, network culture, network publish - ing, radio and television programme production and operation, surveying and mapping, medical institu - tions and domestic mail delivery. Issuers with VIE structure: CSRC perspective and key takeaways According to the supplementary material requirements for certain issuers published by the CSRC during the Observation Period, the CSRC’s concerns about the VIE structure mainly focus on: • the overall compliance of the VIE structure (includ - ing but not limited to foreign exchange manage - ment, overseas investment, foreign investment and tax payment); • whether the applicant is engaged in any busi - ness currently prohibited for foreign investment or participation, and if so, whether the use of the VIE structure is for the purpose of circumventing such prohibition; and • how the transaction arrangements between entities under the VIE structure are implemented in real - ity, including fund transfer between domestic and foreign entities, profit transfer and other aspects of capital flow arrangements.
Given the tightened view of the CSRC as well as other regulatory authorities towards applicants with the VIE structure, here are some takeaways: • be very cautious over using the VIE structure unless it is necessary and to the extent that it is not expressly prohibited by applicable laws and regulations, eg, for the purpose of keeping an ICP licence by a domestic operating entity, as there is still a lack of uniform guidelines regarding whether the VIE structure is permitted for a particular indus - try/business area in which foreign investment is restricted or even prohibited; • if the existing VIE structure is not acceptable by the CSRC or other regulatory authorities, try to unwind or dismantle it along with ceasing the restricted or prohibited business, or doing a spin-off of such business or restructuring the same to a third party; and • historical compliance issues that remain unre - solved in connection with or arising out of the VIE structure should be given full attention and be solved in a timely manner (ideally before the sub - mission of a filing application to the CSRC). Observations on PE/VC Exit Routes IPO: tightened review standards and changes in China’s IPO landscape An initial public offering (IPO) used to be the primary exit route for most private equity and venture capital firms (“PE/VCs”) in China. However, the CSRC intro - duced stricter measures in January 2021 by issu - ing the Provisions on the On-site Inspection of IPO Applicants, which established detailed procedures, methods and requirements for on-site inspection of IPO candidates, marking the start of a more stringent A-share IPO review regime. In April 2024, the State Council issued the Several Opinions of the State Council on Strengthening Regulation to Prevent Risk and Promoting the High-quality Development of the Capital Market, further tightening IPO oversight to enhance risk prevention and overall market quality. Statistics show that the combined withdrawal-and- rejection rate for A-share IPOs exceeded 50% in both 2021 and 2022. Meanwhile, capital raised through A-share IPOs (domestically listed shares) declined sharply, from CNY586.89 billion in 2022 to CNY356.54
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