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The Wall Street Journal

July 30, 2021, 2:24 p.m. EDT

SEC to set new disclosure requirements for Chinese company IPOs

By Paul Kiernan

WASHINGTON—U.S. regulators will require additional disclosures from Chinese companies before allowing them to sell shares in the U.S., following new restrictions from China’s government on companies that raise capital offshore.

The new disclosure requirements from the Securities and Exchange Commission will mostly focus on so-called Variable Interest Entities, or VIEs, a form of a shell company used to skirt Chinese-government restrictions on foreign ownership and listing on overseas exchanges. The entities, which are often based in offshore jurisdictions such as the Cayman Islands, allow U.S. investors to gain exposure to Chinese companies through service agreements and other contracts with the operating company.

SEC Chairman Gary Gensler said U.S. investors may not realize that they are purchasing stock in shell companies rather than an operating company in China.

“In light of the recent developments in China and the overall risks…I have asked staff to seek certain disclosures from offshore issuers associated with China-based operating companies before their registration statements will be declared effective,” Mr. Gensler said Friday.

An expanded version of this story appears on WSJ.com

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