Market discussions intensified in March 2026 over whether regulators may move to restrict listings using red-chip structures, but practitioners say that while this model is unlikely to disappear, companies will increasingly have to demonstrate its commercial necessity and regulatory compliance.
Zhang Xiaodan, partner at DeHeng Law Offices, observes that since the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (Trial Measures) came into effect in March 2023, the number of companies choosing to list in Hong Kong via a red-chip structure has declined significantly.
A red-chip structure typically involves a China-based business listing overseas through an offshore-incorporated holding company, which achieves an indirect Hong Kong listing. The structure dates back to the 1990s. The Trial Measures unified the regulatory framework for both direct and indirect overseas listings by domestic enterprises and clarified that indirect overseas listings are subject to filing-based administration with the China Securities Regulatory Commission (CSRC).
Zhang said “companies that had already established red-chip structures before the introduction of this filing regime, or those operating in sectors subject to foreign investment restrictions, are likely to continue to pursue Hong Kong listings through red-chip arrangements”.
Elvis Hu, a partner at Grandway Law Offices, adds: “For companies with multi-jurisdictional listing ambitions, the red-chip structure remains highly necessary.”
Earlier in March, Bloomberg cited sources as saying that regulators had advised several companies planning Hong Kong listings to dismantle their red-chip structures and instead list through domestic entities.
The CSRC subsequently responded that notifications issued to certain red-chip companies were part of routine regulatory requirements and should be properly understood. It also said both domestic and overseas regulators had focused on concerns that certain red-chip companies exhibit low shareholder transparency and relatively elevated compliance risks.
The CSRC added that following the implementation of the Trial Measures, regulators would assess the necessity and reasonableness of establishing a red-chip structure, particularly where such structures were set up after the new rules took effect.
Hu analyses that the tighter scrutiny came from two angles. On one hand, it serves to mitigate capital outflow risks; on the other, it addresses inherent compliance issues associated with red-chip structures, including foreign exchange controls, taxation and look-through shareholder verification. Compared with an H-share structure, a red-chip structure is more complex and correspondingly more challenging to supervise.
However, Hu emphasised that “the CSRC has not taken a one-size-fits-all approach in rejecting red-chip structures; their necessity must be assessed on a case-by-case basis”.
From a regulatory perspective, necessity might be grounded in commercial rationale, multi-listing considerations and foreign investment access restrictions, Hu said. He suggested that companies may substantiate commercial justification by reference to overseas market presence, R&D activities and management composition – for example, the proportion of overseas revenue, or the overseas nationality or residency status of founders and senior management.
He also said that since the Trial Measures came into force, the proportion of Hong Kong listing applications adopting red-chip structures had gradually decreased, reflecting commercial recalibration. “Even if a red-chip structure is established, it does not circumvent the CSRC filing requirement. As a result, companies without a substantive overseas business rationale are now less inclined to adopt such structures,” he said
Zhang said certain considerations cited by companies – such as greater flexibility in operating a one-share-one-vote structure offshore, the maturity of overseas trust arrangements, or comparatively shorter lock-up periods – may not necessarily be regarded by regulators as sufficient justification.
She added that in practice, some substantial or strategic offshore investors require Chinese companies to establish red-chip structures so they might in Cayman Islands entities rather than directly or indirectly into onshore PRC entities governed by Chinese law. “This scenario does arise in practice, but whether it will be accepted by regulators remains subject to further communication,” she said.
Dismantling red-chip structures?
As to dismantling an existing red-chip structure, the highest financial cost is often tax. Hu cites Focus Media’s 2015 restructuring as an example, where tax costs approached RMB4 billion (USD586 million), including nearly RMB1 billion in overseas withholding tax at a 10% rate. He said the tax burden depended on the company’s size, valuation uplift, tax planning arrangements and engagement with local tax authorities.
Zhang highlights the impact on listing timetables: “For companies seeking to capture a listing window, particularly those with valuation adjustment mechanisms tied to IPO completion, time cost is paramount.”
Hu concurs, recalling that of the nearly 10 dismantling projects he handled between 2015 and 2017, completion timelines ranged from “as fast as three months to six months, and in some cases seven or eight months”.
The road ahead
Both lawyers agree that red-chip structures will not disappear entirely. Zhang cautions against such moves. “If VIE (variable interest entity) structures were to be completely disallowed, the impact on sectors subject to foreign investment restrictions would be profound. Companies in these sectors could find it difficult, if not impossible, to achieve a Hong Kong listing or full circulation of shares, thereby narrowing or even blocking established overseas investment channels,” Zhang said.
She adds that, over the long term, the absence of red-chip structures could result in an overconcentration of H-share companies in the Hong Kong market, potentially diminishing its attractiveness to international investors. Also, requiring non-secondary market overseas investors to navigate PRC corporate governance rules and remedies would also increase their legal costs.
Hu similarly notes that without red-chip structures, investors from Europe, the US Japan, Korea and the Middle East would need to operate directly within the PRC legal system. At the early-stage financing phase, “investors may naturally adopt a more conservative stance towards unfamiliar legal frameworks, and may be less proactive than before”.
“In any event,” Zhang concludes, “provided enterprises operate on a lawful and compliant basis, preserving their autonomy in determining listing structures will better foster an open environment, attract international capital and ensure that Hong Kong – as a gateway for Chinese enterprises going global – continues to thrive with sustained vitality.”
