CHINA Law and Practice Contributed by: Wei Chen, Yue Zhang, Hao Peng and Yi Sun, JunHe LLP
listing must transform their corporate structure from a limited liability company to a joint stock company. Furthermore, if start-ups intend to pursue an overseas listing, it is advisable for them to under- go a corporate restructuring, transitioning from an onshore to offshore structure. 3. Initial Public Offering (IPO) as a Liquidity Event 3.1 IPO v Sale Investors historically preferred IPOs over sales. However, there has been a shift in investor behaviour, and they are now open to both IPOs and sales as potential avenues for liquidity, depending on the transaction terms. 3.2 Choice of Listing Chinese tech companies are currently more inclined to list in China. With the introduction of China’s STAR Market and the Beijing Stock Exchange’s GEM favouring internet and tech companies, Chinese companies may increasing- ly focus on an A-share listing in mainland China and a H-share listing in Hong Kong. When con- sidering an IPO, a Chinese company’s choice between a domestic listing, a foreign listing, or a dual listing depends on several factors. • Market environment and listing requirements: the company’s goal for a quick IPO, espe- cially for high-growth private enterprises, may lead them to prioritise foreign capital markets like the US stock market. This offers significant funding opportunities for Chinese internet tech and new economy compa- nies. A-share listing requirements tend to be stricter than overseas listings.
• Industry characteristics and company attrib- utes: traditional manufacturing companies with stable business models tend to favour A-share listings. Biopharmaceutical develop- ment companies meeting the requirements of China’s STAR Market may prioritise listing on the Shanghai Stock Exchange. Smaller biopharmaceutical research companies may consider listing in Hong Kong. • Valuation and liquidity considerations: companies assess whether the proposed exchange offers a higher valuation and great- er liquidity after listing. Companies in the TMT industries often preferred overseas listings and companies in the traditional industries often preferred domestic listings. • Compliance procedures: companies also consider whether they need to fulfil certain procedures required by Chinese authori- ties to list overseas, such as filing with the China Securities Regulatory Commission (the “CSRC”) or obtaining consent from the Cyberspace Administration of China (the “CAC”) if they handle a significant amount of user data. 3.3 Impact of the Choice of Listing on Future M&A Transactions In terms of future sales, opting for an overseas listing can be a double-edged sword. On the one hand, if a company chooses to list on an exchange outside of China (neither a A-share nor H-share listing), it must operate through an offshore structure. This can complicate a future sale if the buyer is a purely domestic company. It can also lead to cross-border tax issues and scrutiny from multiple jurisdictions. On the other hand, overseas sales often have shorter timeframes from initiation to comple- tion, making the sale process of overseas-listed companies faster. Additionally, selling an over-
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