China Launches Pilot CDR Scheme

On 6 June 2018, the China Securities Regulatory Commission (CSRC) issued the Measures on the Administration on Issuing and Transacting Chinese Depositary Receipts (Trial) together with eight corresponding regulations and guidelines.

The measures follow the issuance by the State Council in late March 2018 of the Several Opinions on the Launch of a Pilot Project on the Domestic Issuance of Shares or Depositary Receipts by Innovative Enterprises.

Together, the opinions, measures and supporting documents mark the launch of a significant new approach to capitalising a select group of Chinese technology companies through CDRs.

To avoid China's more onerous listing requirements, these companies have traditionally conducted their initial public offering through a stock exchange in Hong Kong or abroad.

Under the pilot project, a qualified company will transfer to a bank, that is, the depositary, a portion of its shares listed on a foreign exchange. The depositary will hold the shares, that is, the receipt, in trust and issue new shares backed by the receipt through a stock exchange in Mainland China.

As Chinese citizens are prohibited from investing through an offshore exchange, the pilot project will allow certain companies in emerging sectors, such as big data, cloud computing, artificial intelligence, integrated circuits and so on, to lawfully access domestic capital through China's A-share market.

The opinions present a general framework for implementing the pilot project and address issues including qualifications requirements for issuing CDRs, information disclosure, and investor protections. The measures and supporting documents flesh out these points.