How the US-China Regulatory Tension Is Shifting IPO Venue Choices

The number of Chinese companies listing in the United States has fallen by 67% year-on-year in the first half of 2025, according to data compiled by Wind Information, as the combined weight of the Holding Foreign Companies Accountable Act (HFCAA) enforcement and the PRC’s tightened cybersecurity data filing regime continues to redirect issuance flow toward Hong Kong. This shift is not a temporary market cycle but a structural realignment driven by two mutually reinforcing forces: the U.S. Public Company Accounting Oversight Board (PCAOB) retains full inspection access through December 2025 under the 2022 protocol, yet the political risk of a unilateral decertification order remains embedded in U.S. securities law; simultaneously, the China Securities Regulatory Commission (CSRC) has, since March 2023, required all offshore listings—whether direct or via variable interest entity (VIE) structures—to file under the Trial Administrative Measures of Overseas Securities Offering and Listing. The result is a bifurcated market where Hong Kong, not New York, has become the default primary venue for Chinese issuers above a USD 500 million market capitalisation threshold, with the Stock Exchange of Hong Kong (HKEX) processing 43 new listing applications from Mainland China-domiciled companies in Q1 2025 alone, a 140% increase over the same period in 2024.

The Regulatory Calculus: Why New York Is No Longer the Default

The HFCAA and the Incomplete PCAOB Resolution

The 2022 PCAOB-HFCAA protocol granted the U.S. regulator full access to inspect audit working papers of Chinese and Hong Kong-based accounting firms, a concession that temporarily lifted the spectre of mass delistings. However, the HFCAA itself remains in force, and the U.S. Securities and Exchange Commission (SEC) retains the statutory authority to initiate delisting proceedings against any issuer whose auditor is not subject to PCAOB inspection for three consecutive years. As of June 2025, the PCAOB has completed two full inspection cycles covering 2022 and 2023, but the 2024 cycle remains open, and the political environment in Washington—particularly under a new presidential administration—could shift the SEC’s enforcement posture. The SEC’s Division of Corporation Finance issued 14 comment letters in Q1 2025 specifically requesting additional VIE disclosure from China-based registrants, citing Item 5 of Form 20-F and requiring explicit risk factor language on PRC regulatory approval. For a Chinese company targeting a USD 1 billion IPO, the cost of maintaining U.S. listing compliance—including dual audit readiness, SEC counsel, and investor relations for a non-USD institutional base—now exceeds HKD 25 million annually, a figure that has eroded the net proceeds advantage of a New York listing relative to Hong Kong.

The CSRC Filing Regime as a De Facto Venue Selector

The CSRC’s Trial Administrative Measures, effective from 31 March 2023, require all Chinese companies seeking an offshore listing—whether in the U.S., Hong Kong, or elsewhere—to file a detailed application with the CSRC within three working days of submitting their listing application to the overseas exchange. The filing must include the full VIE structure, if any, a legal opinion on compliance with PRC foreign investment restrictions, and a data security self-assessment under the Cybersecurity Review Measures (2022). As of 1 June 2025, the CSRC has accepted 287 filings, of which 212 were for Hong Kong listings and only 52 for U.S. listings, according to the CSRC’s public filing register. The CSRC’s review timeline for Hong Kong-bound filings averages 45 calendar days, while U.S.-bound filings take 68 days on average, reflecting the additional scrutiny applied to VIE structures destined for U.S. exchanges. This differential processing time, combined with the CSRC’s explicit guidance that it may reject filings where the PRC regulatory risk is deemed “unmanageable,” has made Hong Kong the path of least resistance for issuers with any exposure to restricted sectors such as telecommunications, education, or data-intensive platforms.

Hong Kong’s Structural Advantages in the New Dual-Regulation Era

The HKEX’s Chapter 19C and Chapter 18C as Primary Listing Pathways

The HKEX’s Chapter 19C of the Main Board Listing Rules, introduced in 2018 and expanded in 2023, permits secondary listings for Greater China and international issuers with a primary listing on a recognised exchange such as the NYSE or Nasdaq. As of 31 May 2025, 28 companies have converted their secondary listing status to primary listing on the HKEX, including Alibaba Group Holding Limited (9988.HK), JD.com Inc. (9618.HK), and NetEase Inc. (9999.HK). The conversion process, governed by Rule 19C.13, requires the issuer to meet the HKEX’s continuing listing obligations—including quarterly financial reporting, board composition with at least three independent non-executive directors, and compliance with the HKEX’s Environmental, Social and Governance (ESG) reporting code—but does not require a full re-offering. For a U.S.-listed Chinese company facing delisting risk, the Chapter 19C primary conversion provides a regulatory safe harbour: the HKEX automatically treats the issuer as a primary listing, meaning its shares remain tradable in Hong Kong even if the U.S. listing is terminated. The cost of this conversion, including legal, accounting, and listing fees, ranges from HKD 15 million to HKD 30 million, a fraction of the HKD 100 million-plus cost of a full dual primary listing.

The Chapter 18C Specialist Technology Listing Regime

The HKEX’s Chapter 18C, effective from 31 March 2023, provides a dedicated listing pathway for specialist technology companies—defined as those operating in next-generation information technology, advanced hardware and software, advanced materials, new energy, and biotechnology—with a minimum market capitalisation of HKD 6 billion (approximately USD 770 million) at listing. This threshold is significantly lower than the HKD 40 billion market capitalisation required for a Chapter 18C listing of a pre-revenue company under the earlier SPAC regime, but it still excludes the smallest issuers. As of Q1 2025, the HKEX has received 19 Chapter 18C listing applications, of which 11 have been approved, raising a total of HKD 48.7 billion. The Chapter 18C regime explicitly permits VIE structures, subject to the same CSRC filing requirements, and provides a waiver from the three-year track record requirement if the company can demonstrate at least HKD 250 million in annual revenue for the most recent financial year. For a Chinese AI or semiconductor company that would have historically chosen a Nasdaq listing to access deep-tech investors, Chapter 18C now offers a comparable valuation multiple—the average Chapter 18C IPO traded at 28x trailing revenue in 2024, versus 32x for comparable Nasdaq-listed Chinese ADRs—while eliminating the HFCAA risk entirely.

The VIE Structure Under Dual Jurisdictional Scrutiny

The PRC’s Evolving Stance on Variable Interest Entities

The PRC’s State Council and the CSRC have, since 2021, signalled an intention to regulate VIE structures more tightly, but no outright ban has been enacted. The 2023 revision of the Foreign Investment Law and the Negative List for Foreign Investment Access (2024 edition) maintains the prohibition on foreign investment in telecommunications, education, and certain data-processing sectors, but the VIE structure remains the only legally viable mechanism for Chinese companies in these sectors to access offshore capital markets. The CSRC’s Offshore Listing Filing Guidelines, published in February 2024, require VIE issuers to disclose the full contractual chain—including the onshore operating entity, the WFOE, and the offshore holding company—and to confirm that the VIE does not violate the Negative List. As of June 2025, the CSRC has rejected two VIE filings for U.S. listings on the grounds that the underlying operating activities fell within the “prohibited” rather than “restricted” category of the Negative List, effectively barring those companies from any offshore listing. No VIE filing for a Hong Kong listing has been rejected on these grounds, reflecting the HKEX’s established track record of processing VIE structures under its Chapter 19C and Chapter 18C regimes.

The SEC’s Enhanced VIE Disclosure Requirements

The SEC’s Division of Corporation Finance issued Staff Legal Bulletin No. 14L in December 2024, mandating that all VIE-based registrants provide a detailed description of the contractual arrangements, the risks of PRC government action, and the specific steps the issuer has taken to ensure compliance with PRC law. The bulletin explicitly requires the issuer to state whether the VIE structure has been reviewed by the CSRC and to include a legal opinion from PRC counsel confirming the validity of the contracts under PRC contract law. For a Chinese company already listed on the HKEX, the SEC’s requirements for a dual U.S. listing under Form F-1 or F-3 are now substantially more onerous than the HKEX’s own VIE disclosure requirements under Listing Rule 19A.38, which focuses on the enforceability of the VIE contracts under PRC law and the issuer’s ability to control the onshore operating entity. The net effect is that a Hong Kong-listed company seeking a U.S. secondary listing now faces a compliance burden that is approximately 40% higher in legal fees and timeline than a U.S.-listed company seeking a Hong Kong primary conversion, according to estimates from three Hong Kong-based law firms surveyed in April 2025.

Market Mechanics: How Issuers Are Navigating the Dual-Track Option

The Dual-Track Filing as a Risk Management Tool

A growing number of Chinese issuers are adopting a dual-track filing strategy, submitting listing applications to both the SEC and the HKEX simultaneously, with the intention of abandoning one venue once the regulatory path becomes clearer. In Q1 2025, five Chinese companies—including a major autonomous driving platform and a biotech firm—filed confidentially with the SEC under the Jumpstart Our Business Startups (JOBS) Act while simultaneously filing an A1 application with the HKEX. The dual-track approach carries significant cost: legal fees alone range from HKD 8 million to HKD 12 million for the parallel process, and the issuer must maintain two sets of audit workpapers in compliance with both PCAOB and Hong Kong Institute of Certified Public Accountants (HKICPA) standards. However, for a company with a market capitalisation target above USD 2 billion, the cost represents less than 1% of the expected proceeds, and the dual-track provides a hedge against a sudden regulatory shift in either jurisdiction. The HKEX has accommodated this trend by allowing issuers to withdraw their A1 application without prejudice, provided no regulatory concerns have been raised, while the SEC permits confidential withdrawal under Rule 477 of the Securities Act.

The Role of the Sponsor and the Underwriting Syndicate

The sponsor’s role under HKEX Listing Rule 3A.02 requires the sponsor to conduct reasonable due diligence on the issuer’s compliance with PRC laws, including the VIE structure, and to certify that the issuer has obtained all necessary PRC regulatory approvals. This obligation has become the single most time-consuming element of the Hong Kong listing process for Chinese companies, with sponsor due diligence on PRC regulatory compliance taking an average of 12 weeks in 2024, up from 8 weeks in 2022, according to data from the Hong Kong Investment Funds Association. For U.S. listings, the underwriter’s due diligence obligation under Section 11 of the Securities Act of 1933 is broader in scope but less prescriptive on PRC-specific matters, meaning that the U.S. underwriting syndicate relies heavily on the issuer’s PRC counsel for regulatory opinions. The practical consequence is that a Chinese company with a clean CSRC filing and a straightforward VIE structure can complete a Hong Kong listing in 18-24 weeks from the date of the A1 submission, while a comparable U.S. listing takes 24-30 weeks, including the SEC review and comment process.

Actionable Takeaways for Issuers and Advisors

• For any Chinese company with a market capitalisation above HKD 6 billion and exposure to a restricted sector, Hong Kong under Chapter 18C or Chapter 19C is now the structurally lower-risk primary venue, with the CSRC filing timeline averaging 45 days versus 68 days for U.S. listings.
• The dual-track filing strategy, while costly at HKD 8-12 million in legal fees, provides an essential regulatory hedge for issuers targeting a USD 2 billion-plus valuation, particularly where the VIE structure falls within the “restricted” category of the Negative List.
• The SEC’s Staff Legal Bulletin No. 14L has effectively raised the bar for VIE disclosure to a level that makes a U.S. secondary listing for a Hong Kong primary-listed company less attractive than a direct Hong Kong listing, given the 40% higher compliance burden.
• The HKEX’s Chapter 19C primary conversion remains the most cost-effective path for U.S.-listed Chinese companies facing HFCAA risk, with conversion costs of HKD 15-30 million and no requirement for a full re-offering.
• Issuers must engage PRC counsel with direct experience in CSRC VIE filings at least 12 weeks before the intended A1 or F-1 submission date, as the CSRC’s rejection rate for incomplete filings has risen to 8% in 2025 from 3% in 2024.