{"text":[[{"start":6.9,"text":"Beijing’s tighter scrutiny of foreign capital after the Meta-Manus deal is forcing Chinese companies to rethink a popular ownership structure that fuelled a decade-long listings boom."}],[{"start":18.6,"text":"Groups including Tencent-backed AI start-up StepFun and fast-food chain Home Original Chicken have rushed to dismantle their so-called red-chip structures ahead of planned overseas listings, according to three people familiar with the process."}],[{"start":33.35,"text":"Beijing-based AI unicorn Moonshot, Alibaba-backed autonomous driving group DeepRoute.ai and short-video app developer Kuaishou’s AI unit Kling are also considering reincorporating in China."}],[{"start":46.3,"text":"Red-chip structures entail setting up a company outside mainland China, often in a tax haven such as the British Virgin Islands or Cayman Islands, to own the Chinese operating entity."}],[{"start":57.15,"text":"They may also involve a so-called variable interest entity, in which the offshore company controls the onshore business through a contract rather than direct ownership."}],[{"start":67.6,"text":"These structures make it easier for companies to list overseas by allowing them to bypass foreign ownership caps imposed by Chinese authorities. The offshore entities also come with legal rights and corporate governance rules that are more familiar to foreign funds."}],[{"start":82.14999999999999,"text":"Red-chip structures, which regulators tacitly accepted for years, helped drive a boom in offshore listings of Chinese technology companies including Alibaba, PDD and Tencent."}],[{"start":93.1,"text":"However, Beijing has grown increasingly concerned about strategic technology and sensitive data falling into foreign hands. In January, the China Securities Regulatory Commission began blocking some overseas listings by red-chip companies."}],[{"start":107.94999999999999,"text":"The move came after Meta said it had bought Manus, an AI start-up whose team relocated from China to Singapore before the acquisition. Beijing has since blocked the $2bn purchase, branding it a “conspiratorial” attempt to hollow out the country’s technology base and ordering it to be unwound."}],[{"start":125.64999999999999,"text":"Companies are now reincorporating in mainland China to reduce friction with regulators as they prepare for initial public offerings."}],[{"start":134.2,"text":"“Whether to dismantle the red-chip structure is no longer in question,” said Eugene Weng, a lawyer at Shanghai-based Wintell & Co. Most investment banks and law firms are now advising clients to unwind their offshore ownership structures and seek Hong Kong listings, he added."}],[{"start":151.25,"text":"“The key is how to complete the restructuring as cheaply and efficiently as possible,” said Weng. “Many companies have redemption agreements with investors, and if they fail to list by the agreed deadline, they could face huge share buybacks or even a change in control.”"}],[{"start":167.2,"text":"The CSRC has downplayed its scrutiny of red-chip structures, saying in March it was part of an effort to curb “low-quality” listings, especially after US regulators stepped up probes of accounting fraud and of small-cap Chinese companies over concerns of stock manipulation."}],[{"start":184.1,"text":"Chinese regulators have stressed that they continue to welcome foreign investment, but advisers warned that the shift away from red-chip structures could change how foreigners invest in Chinese companies at the pre-IPO stage and limit groups’ access to foreign capital."}],[{"start":199.75,"text":"“The recalibration will be more fundamental” for global generalist funds such as venture capital firms backed by US university endowments, said a lawyer who advises companies on dismantling their opaque offshore structures and who asked not to be named."}],[{"start":215.25,"text":"“Their investment processes, governance expectations and exit models were built around the predictability of offshore structures.”"}],[{"start":222.55,"text":"An IPO lawyer at a “red-circle” law firm in Beijing estimated that 70 to 80 per cent of companies applying for overseas listings had been asked to unwind their red-chip structures. Affected companies span consumer goods, technology, pharmaceuticals and manufacturing."}],[{"start":239.10000000000002,"text":"Companies can appeal to retain their offshore structures, said lawyers, but they must be justified with strong commercial reasons beyond just ease of financing."}],[{"start":248.35000000000002,"text":"The involvement of other regulators, including the National Development and Reform Commission, China’s economic planner, has further complicated overseas listing approvals."}],[{"start":258.35,"text":"Bankers and lawyers said the NDRC, which reviewed the Meta-Manus deal, had the power to block some red-chip listings, reflecting its growing role in industrial policy and national security reviews."}],[{"start":270.5,"text":"StepFun, Home Original Chicken, Moonshot, DeepRoute.ai and Kuaishou did not respond to requests for comment."}],[{"start":278.3,"text":"Contributions from Zijing Wu in Hong Kong and Cheng Leng and Wenjie Ding in Beijing"}],[{"start":290.25,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1781087052_2729.mp3"}