China Securities listing structure: H shares, red chips, VIE models

富途資訊 ·  06/24/2021 19:46  · Moomoo Courses

On April 30, 2018, the HKEx made a major update to the listing rules. New additions to the revised main Board listing rules include allowingUnprofitable biotechnology companies, companies with different voting rights structuresTo list in Hong Kong and to set up a new convenient secondary listing channel to accommodate Greater China and overseas companies. In recent years, Hong Kong has become the first choice for many high-quality Chinese stocks to be listed.

At present, there are three main modes for Chinese companies to list in Hong Kong:H-share model, typical red chip model, VIE model. Among them, H-share model belongs to direct listing; typical red chip model and VIE model belong to indirect listing, which is usually called red chip mode.

Direct listing is when a company is registered in mainland China and, with the approval of the SFC, directly applies to the Hong Kong Stock Exchange for the issuance and registration of shares or other financial securities, and applies to the exchange for listing, that is, the so-called H-share listing.

Indirect listing means that the shareholders of a mainland company set up an offshore company abroad (such as the Cayman Islands), and use the offshore company to control the shares or assets of the domestic company by return acquisition or agreement, and then use the offshore company as the main body of listing, apply to the Hong Kong Stock Exchange for the issuance, registration and listing of stocks or other financial securities, that is, the typical red chip and VIE listing.

I. introduction to listing architecture

1. H-share listing

In the name of companies registered in the mainland, some foreign-funded shares are divided and, with the approval of the mainland Securities Regulatory Commission, directly apply to the Hong Kong Stock Exchange for trading, while the domestic shares can still be listed on the mainland A-shares. The listing of H-shares shall be subject to China's legal and accounting systems and issue shares to foreign investors.

This pattern is common inChinese state-owned enterprisesCompanies listed in Hong Kong, such as China Life Insurance Company Limited, Ping An Insurance and China Construction Bank Corporation of China, all adopt this model.


Picture source: green specialized capital

two。 Typical red chip model

"red chip" is not a legal concept, but a term that emerged in Hong Kong in the 1990s, when the mainland was regarded as red China. "Red chip enterprises" refer to those enterprises with a Chinese background but registered in Hong Kong.

The shareholders of a Chinese company register and establish a listing subject abroad (such as the Cayman Islands), hold domestic interests by using the offshore company, and then use the offshore company as the main listing body to apply for listing in Hong Kong, but its main operating assets and business are in China.

With the introduction of the 97 Red Chip guidelines, the model needs the examination and approval of the Securities Regulatory Commission, the National Development and Reform Commission, the competent department of commerce, and the State-owned assets Supervision and Administration Commission. Therefore, there are few successful cases in recent years.


Picture source: green specialized capital

3.VIE protocol control mode

VIE, namely Variable Interest Entity, is "variable interest entity", also known as "protocol control". This model is common in some industries.Restrictions on the entry of foreign capitalThe Chinese company. In order to solve the predicament of overseas listing and financing of these companies, the shareholders of domestic enterprises realize the separation of overseas listed entities from domestic operating entities by registering overseas listed entities.

In this model, overseas listed entities will achieve control over the actual operating entities by signing agreements with domestic entity companies. The VIE model generally consists of three parts, namely, overseas special purpose company (listing main body), domestic return investment enterprise (WFOE) and domestic operating entity.

Due to industry access restrictions and other reasons, Tencent, XIAOMI, NetEase, Inc and other well-known Internet companies have adopted the VIE model to list.


Picture source: green specialized capital

Two. comparison of listing structure

H-share model

Red chip model

Examination and approval

Subject to the approval of the China Securities Regulatory Commission

No need for approval of China Securities Regulatory Commission

Listing subject law

Chinese law + Hong Kong law

Law of off-site establishment + laws of Hong Kong

Structural reorganization

No need to reorganize

An off-site architecture needs to be built.


It needs to be approved by Chinese regulatory authorities.

No need for approval by Chinese regulatory authorities

H-share listings are more suitable for state-owned enterprises, which are faster and more straightforward through the approval of the China Securities Regulatory Commission. In addition, due to regulatory reasons, state-owned enterprises seldom use red-chip model, mainly H-shares. In addition, some enterprises whose corporate structure can no longer be changed will also choose H shares for listing.

III. Vie framework example

XIAOMI, as a leading Internet company in China, its IPO has attracted the attention of many people. At present, the company is mainly engaged in mobile communications business and also involves foreign investment restrictions. Against this background, XIAOMI also set up a VIE framework and adopted this model to list in Hong Kong.

As can be seen from the figure below, XIAOMI Group (Cayman) has set up a SPV XIAOMI Hong Kong in Hong Kong, and XIAOMI Hong Kong has set up WOFE XIAOMI Communications in Hong Kong. XIAOMI Communications signed agreements with XIAOMI Technology and its industrial and commercial registration shareholders Lei Jun (77.8%), Li Wanqiang (10.12%), Hong Feng (10.07%) and Liu de (2.01%) to control legal documents, control 100% of XIAOMI Technology through VIE agreements, and indirectly control XIAOMI Technology subsidiaries.


VIE architecture is inherently flexible, and most enterprises prefer this model. However, the Hong Kong Stock Exchange currently stipulates that the VIE must be restricted by laws within China, and there are certain restrictions on listing policies, which is also one of the main reasons why Chinese stocks choose to list in the United States.

The translation is provided by third-party software.

The above content is for informational or educational purposes only and does not constitute any investment advice related to Futu. Although we strive to ensure the truthfulness, accuracy, and originality of all such content, we cannot guarantee it.
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