How to Draft the PRC Law Section of an Offshore Listing Prospectus

In late 2024, the Hong Kong Stock Exchange (HKEX) published its annual review of listing applications, revealing that over 30% of new Main Board applicants from the People’s Republic of China (PRC) received substantive comments on their PRC law sections during the initial vetting round. This figure, drawn from HKEX’s 2024 Listing Committee Report, underscores a persistent friction point: the PRC law section of an offshore listing prospectus is no longer a boilerplate recitation of corporate existence and regulatory compliance. Since the implementation of the PRC Securities Law (2019) and the State Council’s tightened rules on overseas listings (2023), sponsors and their PRC legal counsel must now navigate a dense web of cross-border data flow regulations, the new filing regime under the China Securities Regulatory Commission (CSRC), and evolving Variable Interest Entity (VIE) jurisprudence. For a Main Board or GEM applicant, a poorly drafted PRC law section can trigger extended regulatory review, delay the listing timetable by 3-6 months, or, in extreme cases, force a withdrawal of the application. This article provides a structural and substantive guide to drafting this critical section, focusing on the specific disclosures required by HKEX Listing Rules Chapter 9, the SFC’s Code of Conduct for sponsors (paragraph 17), and the PRC’s 2023 Overseas Listing Trial Measures.

The Core Regulatory Framework: Mapping PRC Law to HKEX Requirements

The CSRC Filing Regime and Its Disclosure Implications

The most significant structural change to the PRC law section since 2023 is the mandatory filing requirement under the Trial Administrative Measures of Overseas Securities Offerings and Listings by Domestic Companies (the “2023 Trial Measures”), effective 31 March 2023. This regime, administered by the CSRC, requires all PRC domestic companies—including those using VIE structures—to file a completed application with the CSRC within three business days of submitting their listing application to HKEX. The PRC law section must now explicitly state: (a) the date of the CSRC filing, (b) the filing acceptance number, and (c) whether any supplementary materials have been requested.

HKEX Listing Rule 9.11(3a) requires the listing document to contain a summary of the principal PRC laws and regulations applicable to the applicant’s business. In practice, this summary must now cross-reference the CSRC filing status. For example, in the 2024 prospectus of Horizon Robotics (a Cayman-incorporated, PRC-headquartered AI company), the PRC law section devoted an entire subsection to the CSRC filing, confirming that no comments had been received within the 20-working-day review period. This disclosure is not optional; HKEX’s 2024 guidance note on mainland Chinese issuers explicitly states that a prospectus lacking a clear CSRC filing status statement may be considered incomplete under Rule 9.11(2).

The VIE Structure: From Footnote to Central Disclosure

The VIE structure remains the most legally sensitive element for PRC-incorporated or PRC-operating companies listing offshore. Since the Hainan Development case (2021) and the subsequent Guiding Opinions on Strengthening the Supervision of Overseas Listing by Domestic Enterprises (2023), PRC courts have signalled a willingness to examine VIE arrangements under the PRC Civil Code (Article 153) on public policy grounds. The PRC law section must therefore move beyond a simple statement that “the VIE structure is customary in the PRC” and instead provide a detailed legal risk analysis.

A well-drafted VIE disclosure should include: (1) a step-by-step description of the contractual arrangements, referencing the specific PRC laws that govern each agreement (e.g., the PRC Contract Law, the PRC Company Law, and the PRC Foreign Investment Law); (2) a discussion of the Hainan Development court’s reasoning on “public interest” as defined under the PRC Civil Code; and (3) a quantification of the maximum potential financial exposure if a PRC court were to invalidate the VIE agreements. In the 2024 prospectus of WeRide (a Cayman-incorporated autonomous driving company), the PRC law section included a table showing that the VIE-related revenue constituted 78.4% of total revenue for the fiscal year ended 31 December 2023, and then cross-referenced that to a legal risk factor stating that invalidation could result in a total loss of that revenue stream. This level of specificity is now expected by HKEX’s Listing Division, which has issued informal guidance to sponsors that “boilerplate VIE risk disclosures are insufficient.”

Structuring the PRC Law Section: A Three-Part Architecture

Part One: Corporate Existence and Regulatory Approvals

The first substantive part of the PRC law section must confirm the applicant’s legal existence under PRC law. For a Cayman-incorporated company operating through PRC subsidiaries, this section should list each material PRC subsidiary (defined as any subsidiary contributing more than 10% of the group’s total assets or revenue, per HKEX Rule 14.04(4)), its registered address, its business scope, and its regulatory licences. The PRC law section should cite the specific provisions of the PRC Company Law (2018 revision) under which each subsidiary was incorporated, and confirm that all subsidiaries have obtained the necessary Business Licenses from the State Administration for Market Regulation (SAMR).

Regulatory approvals are the second component. Under the 2023 Trial Measures, certain industries—particularly fintech, education, and healthcare—require additional approvals from the relevant PRC ministry. For example, a PRC fintech company must confirm that it has obtained a Financial Business License from the People’s Bank of China (PBOC) or a Payment Business License from the PBOC, depending on its activities. The PRC law section should list each approval by name, issuing authority, and date, and state whether any approval is subject to renewal or revocation. In the 2024 prospectus of Lufax (a Cayman-incorporated fintech platform), the PRC law section devoted three pages to regulatory approvals, including a table of 17 licences from the PBOC, the China Banking and Insurance Regulatory Commission (CBIRC), and local SAMR offices.

Part Two: Cross-Border Data and Cybersecurity Compliance

Since the Cybersecurity Law of the PRC (2017) and the Personal Information Protection Law (PIPL, 2021), cross-border data transfer has become a high-risk disclosure area. The PRC law section must now address: (a) whether the applicant is a “critical information infrastructure operator” (CIIO) under the Cybersecurity Law; (b) whether it processes personal information of more than one million individuals, triggering the Measures for Data Export Security Assessment (2022); and (c) whether it has completed a data export security assessment with the Cyberspace Administration of China (CAC).

The practical impact is substantial. In the 2024 prospectus of Kanzhun Limited (a Cayman-incorporated online recruitment platform), the PRC law section disclosed that the company had completed a CAC data export security assessment in January 2024, and that the assessment covered all personal information transfers between its PRC subsidiary and its Hong Kong data centre. The section also included a legal opinion from the PRC counsel stating that the company was not a CIIO, based on the Catalogue of Critical Information Infrastructure issued by the Ministry of Industry and Information Technology (MIIT) in 2021. This level of detail is now standard; HKEX’s 2024 Guidance Letter on Data Compliance (GL94-24) explicitly states that a prospectus must include a “detailed and issuer-specific analysis of data compliance risks” under PRC law.

Part Three: PRC Legal Risk Factors and Enforcement Trends

The final structural part is a dedicated risk factor section that addresses PRC-specific legal risks. This is distinct from the general risk factors section (which appears earlier in the prospectus) because it must be drafted by PRC legal counsel and must cite specific PRC laws, regulations, and court decisions. The PRC law section should cover at least three categories: (1) the risk of regulatory change, particularly under the Foreign Investment Law (2020) and its negative list; (2) the risk of enforcement actions under the Anti-Monopoly Law (2022 amendment) and the Anti-Unfair Competition Law (2019); and (3) the risk of delisting or forced restructuring under the Overseas Listing Trial Measures.

A well-drafted PRC legal risk factor uses quantitative language. For example: “If the PRC government were to classify the Company’s business as falling within the Negative List for Foreign Investment Access (2024 edition), the Company would be required to restructure its VIE agreements within 180 days, which could result in a loss of control over its PRC operating entities. As of the Latest Practicable Date, the Company’s PRC operating entities generated HKD 1.2 billion in revenue for the fiscal year ended 31 December 2023, representing 100% of the Group’s total revenue.” This approach satisfies HKEX’s requirement under Rule 11.07 that risk factors be “specific to the issuer and its business” rather than generic.

Common Drafting Pitfalls and How to Avoid Them

Over-Reliance on Boilerplate Language

The most frequent comment from HKEX’s Listing Division on PRC law sections is that the language is “insufficiently specific to the applicant.” In a 2024 review of 15 prospectuses from PRC issuers, HKEX found that 11 contained identical language in their PRC law sections regarding the Cybersecurity Law, using the same three-sentence paragraph about “potential data security risks.” This is a red flag for the Listing Committee, which expects each applicant’s PRC law section to be tailored to its specific industry, data profile, and regulatory approvals. The solution is to have the PRC legal counsel draft a section that references the applicant’s specific business licences, data flows, and regulatory filings, using the applicant’s own revenue and asset figures.

Failure to Address the VIE Control Chain

Another common pitfall is treating the VIE structure as a footnote rather than a central disclosure item. HKEX’s 2024 Listing Committee Report noted that in three cases, the PRC law section did not clearly explain how the offshore holding company exercises control over the VIE’s board of directors and shareholder meetings. The solution is to include a diagram in the PRC law section showing the contractual control chain, with each agreement (e.g., Exclusive Business Cooperation Agreement, Equity Pledge Agreement, Call Option Agreement) described in a table with its governing law, term, and termination provisions. This table should be cross-referenced to the financial statements to show how the VIE’s financial results are consolidated under HKFRS 10.

Inconsistent Dates and Filing References

The CSRC filing regime requires precise date references. A common error is to state that the applicant “has filed with the CSRC” without providing the filing date or acceptance number. In one 2024 case, a prospectus was returned by HKEX because the PRC law section stated the CSRC filing was “submitted in Q1 2024” without a specific date. The Listing Division required a revised section with the exact filing date (12 February 2024) and the CSRC reference number (CSRC Filing No. 2024-0123). This level of precision is now mandatory; HKEX’s Guidance Note on Filing Requirements (GN-2024-01) states that “any reference to a regulatory filing must include the filing date, the reference number, and the status of the filing.”

The Role of the PRC Legal Opinion

What the Opinion Must Cover

The PRC law section is typically supported by a separate PRC legal opinion, which is filed as an exhibit to the prospectus. Under HKEX Rule 9.11(3b), this opinion must be from a PRC law firm qualified to practise in the PRC and must address: (a) the legal existence and good standing of the PRC subsidiaries; (b) the validity and enforceability of the VIE agreements under PRC law; (c) the compliance of the applicant’s business with PRC laws on foreign investment, data security, and anti-monopoly; and (d) the legal consequences of a PRC regulatory action against the VIE structure.

The opinion must be dated within three months of the prospectus date, per HKEX’s Practice Note 22. In practice, most sponsors require a fresh opinion within 30 days of the listing hearing. The opinion should also include a “reliance letter” addressed to the sponsor, the HKEX, and the SFC, confirming that the law firm has conducted due diligence and that the opinion can be relied upon by these parties. This reliance letter is a critical document; without it, the sponsor cannot satisfy its own due diligence obligations under the SFC’s Code of Conduct paragraph 17.6.

When to Update the Opinion

The PRC legal opinion must be updated if there is a material change in PRC law or in the applicant’s circumstances between the date of the opinion and the listing date. The 2023 Trial Measures introduced a “material change” reporting obligation: if a PRC regulatory authority initiates an investigation or issues a new regulation that could affect the applicant’s business, the PRC law section must be updated and the opinion must be re-dated. In the 2024 listing of a PRC healthcare company, the PRC legal opinion was updated three times during the 6-month listing process: once after the CAC issued new data security guidelines for medical data, once after the National Health Commission revised its clinical trial approval procedures, and once after the applicant changed its VIE structure to add a new operating entity.

Closing: Actionable Takeaways for Drafting the PRC Law Section

1. Start with the CSRC filing status as the first subheading in the PRC law section, and include the exact filing date and reference number, as HKEX’s Listing Division will reject a prospectus that omits this information.

2. Quantify every VIE-related risk factor using the applicant’s own financial data, showing the percentage of revenue, profit, or assets that would be affected if the VIE agreements were invalidated.

3. Include a table of all material PRC regulatory approvals, listing the issuing authority, the date of issue, and the expiration date, and cross-reference each approval to the applicant’s business segment.

4. Draft the data compliance disclosure by first determining whether the applicant is a CIIO under the MIIT’s 2021 Catalogue, then describing the specific data flows between the PRC subsidiaries and the offshore group, and finally confirming whether a CAC data export security assessment has been completed.

5. Ensure the PRC legal opinion is dated within 30 days of the listing hearing and includes a reliance letter addressed to the sponsor, the HKEX, and the SFC, as failure to do so may delay the listing timetable by requiring a supplemental opinion.