The CSRC's Special Focus Areas for 'Contractual Arrangement' Companies in Filings

The push for a dual-listing in Hong Kong and New York by Chinese companies using variable interest entity (VIE) structures has entered a new phase of regulatory scrutiny. Since the China Securities Regulatory Commission (CSRC) implemented its overseas securities listing and filing rules on March 31, 2023, the regulator has processed over 300 filings from companies seeking to list abroad. By Q1 2026, the CSRC’s feedback on these filings reveals a clear pattern: the regulator is no longer merely accepting VIE structures as a given but is actively interrogating their necessity, structural integrity, and the specific risks they pose to both domestic and international investors. This shift is not a theoretical exercise. In 2024, the CSRC issued supplementary comments on 47% of all VIE-related filings, demanding clarifications on the contractual arrangements’ enforceability under PRC law and the potential for regulatory retroactivity. For CFOs, company secretaries, and cross-border investors structuring deals through Hong Kong, this means the standard VIE template is no longer sufficient. The filing process now demands a granular, jurisdiction-specific justification that goes far beyond boilerplate disclosures.

The CSRC’s Core Review Framework for Contractual Arrangements

The CSRC’s review of contractual arrangements—commonly known as VIE structures—is anchored in three distinct dimensions: the necessity of the structure, its legal enforceability, and the transparency of the risk disclosures. Each dimension is assessed against the specific licensing requirements of the target industry.

Necessity Assessment and Industry Licensing

The CSRC requires every filing company to demonstrate that the contractual arrangement is the only viable structure to comply with PRC foreign investment restrictions. This is not a perfunctory checkbox. The regulator cross-references the company’s business operations against the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 edition). For example, companies operating in value-added telecommunications services, such as online content or data processing, must confirm that the specific sub-sector appears on the Negative List. If the business activity is not explicitly restricted, the CSRC will question why a direct equity structure was not adopted. In 2025, the CSRC rejected or paused three filings on this basis alone, requiring the applicants to restructure their offshore holdings into direct equity ownership where legally permissible.

Contractual Enforceability Under PRC Law

A second focus is the legal enforceability of the VIE agreements under PRC contract law. The CSRC demands that the filing include a legal opinion from a qualified PRC law firm, analyzing the validity of the control agreements—including the exclusive option agreements, equity pledge agreements, and business cooperation agreements. The regulator specifically examines whether any provision could be deemed void under Article 52 of the PRC Contract Law for violating mandatory provisions of laws or regulations. A 2024 CSRC guidance note (No. 2024-05) explicitly stated that any contractual arrangement that attempts to circumvent a clear statutory prohibition on foreign ownership will be treated as presumptively invalid. This has forced issuers to provide detailed legal reasoning on why their specific structure does not fall within this category, often requiring side-by-side comparisons with applicable industry regulations.

Risk Disclosure and Investor Protection

The third dimension is the adequacy of risk disclosures in the prospectus. The CSRC now mandates that the filing include a dedicated section titled “Risks Relating to the Contractual Arrangement Structure,” which must address five specific scenarios: (1) the potential for the PRC government to invalidate the VIE agreements retroactively; (2) the risk that the offshore listed entity may lose control over the onshore operating company; (3) the absence of direct equity ownership in the onshore entity; (4) the potential for conflicts of interest between the offshore entity and the onshore shareholders; and (5) the limited recourse available to investors if the structure is challenged. The CSRC cross-references these disclosures against the Hong Kong Stock Exchange (HKEX) Listing Rules, specifically Rule 8.06 concerning the suitability for listing, and the Securities and Futures Commission (SFC) Code on Corporate Governance Practices (Appendix 14). Failure to align these disclosures with both PRC and Hong Kong regulatory expectations has resulted in filing delays of 60 to 90 days.

Structural Documentation and Compliance Requirements

Beyond the conceptual review, the CSRC requires a specific set of documents that go beyond the standard prospectus. These documents form the evidentiary basis for the regulator’s assessment.

The Legal Opinion and Its Scope

Every filing must include a legal opinion from a PRC law firm that is registered with the CSRC. The opinion must cover three specific areas: (1) the legality of the contractual arrangements under the current Negative List; (2) the enforceability of each agreement under the PRC Civil Code; and (3) the absence of any existing or pending litigation that could affect the structure. The opinion must also state the law firm’s own independence from the sponsor and the issuer. In 2025, the CSRC rejected two legal opinions because the law firm had a prior advisory role in structuring the VIE, creating a conflict of interest. The regulator’s stance is that the legal opinion must be an independent third-party assessment, not a validation of the law firm’s own prior work.

The Sponsor’s Due Diligence Report

The sponsor—typically an investment bank licensed by the SFC—must submit a due diligence report that specifically addresses the VIE structure. This report must include a detailed breakdown of the cash flow mechanics between the offshore listed entity, the Hong Kong holding company, and the onshore operating company. The CSRC has been particularly focused on the repatriation of profits and the mechanisms for servicing dividends or interest payments. The report must also identify any “red flag” indicators, such as a history of unilateral amendments to the VIE agreements by the onshore shareholders or any prior instances where the onshore entity failed to pass profits upstream. The HKEX’s Listing Decision LD43-3 (2018) on VIE structures serves as a baseline reference, but the CSRC’s requirements are more granular, demanding specific financial projections and sensitivity analyses for each cash flow scenario.

The Onshore Entity’s Compliance Certificates

A third critical document is a compliance certificate from the onshore operating company, confirming that it holds all necessary licenses and permits to conduct its business. This certificate must be notarized and apostilled for use in the offshore filing. The CSRC cross-verifies this certificate against its own database of licensed entities. Any discrepancy—such as a missing license for a specific sub-service or an expired permit—will trigger a supplementary filing request. In 2024, this requirement caused a 45-day delay for a major Chinese fintech company that had inadvertently allowed a key data processing license to lapse while preparing its filing.

Cross-Border Implications and Hong Kong’s Role

The CSRC’s filing regime has direct implications for the Hong Kong listing process and the broader cross-border structure. Hong Kong’s role as the primary listing venue for many VIE-structured companies means that the CSRC’s requirements must be reconciled with the HKEX’s own rules.

Alignment with HKEX Listing Rules

The HKEX’s Listing Rules, particularly Chapter 8 on suitability for listing and Chapter 19 on the listing of overseas issuers, require that a VIE structure be “necessary” and not merely “convenient.” The CSRC’s filing process effectively imposes a similar test. The practical consequence is that the same legal opinion prepared for the CSRC filing must be submitted to the HKEX as part of the listing application. The HKEX’s Listing Division has, since 2023, required that any CSRC supplementary comments be addressed before the hearing. This creates a sequential dependency: the CSRC filing must be substantially complete before the HKEX hearing can proceed. For issuers targeting a dual listing, this means the timeline is effectively governed by the CSRC’s processing speed, which averaged 120 calendar days for VIE-related filings in 2025, compared to 75 days for non-VIE filings.

The SFC’s Oversight on Disclosure

The SFC’s Code on Corporate Governance Practices (Appendix 14) requires that listed companies disclose any material risks related to their corporate structure. The CSRC’s filing now serves as the primary source document for these disclosures. The SFC has issued guidance (Circular No. 2024-12) stating that it will consider the CSRC’s filing comments as part of its own review of prospectus disclosures. This means that any deficiency identified by the CSRC in the risk disclosure section will be flagged by the SFC during the prospectus review. Issuers must therefore ensure that the risk disclosures in the Hong Kong prospectus are identical in substance to those in the CSRC filing, with any differences requiring a written explanation to both regulators.

Implications for the Cayman/BVI Holding Structure

The offshore holding structure, typically incorporated in the Cayman Islands or BVI, must now include specific provisions in its constitutional documents to address the CSRC’s requirements. The articles of association must explicitly state that the offshore entity’s rights under the VIE agreements are subject to PRC law and that any dispute arising from the structure will be resolved through arbitration in a PRC-seated arbitration institution, such as the China International Economic and Trade Arbitration Commission (CIETAC). The CSRC has also required that the offshore entity’s board of directors include at least one independent director with expertise in PRC regulatory compliance. This requirement, while not yet codified in a specific CSRC rule, has been a consistent condition in recent filing approvals.

Practical Takeaways for Issuers and Advisors

The CSRC’s intensified scrutiny of contractual arrangement structures demands a proactive, rather than reactive, approach from issuers and their advisors.

1. Conduct a pre-filing necessity audit: Before engaging a sponsor, commission a PRC law firm to conduct an independent audit of whether the VIE structure is legally necessary under the current Negative List, as any finding of non-necessity will require a structural restructuring before the filing can be submitted.

2. Prepare a dual-track legal opinion: Engage a PRC law firm that is independent of the sponsor to prepare a single legal opinion that simultaneously satisfies both the CSRC’s requirements and the HKEX’s Listing Rules, ensuring that the opinion covers all five risk scenarios mandated by the CSRC.

3. Align cash flow documentation: Ensure that the sponsor’s due diligence report includes a detailed, audited cash flow analysis for the three most recent fiscal years, showing the actual repatriation of profits from the onshore entity to the offshore holding company, with a sensitivity analysis for a 30% decline in net income.

4. Verify onshore licenses early: Request the onshore operating company to provide a complete inventory of all business licenses and permits at least 90 days before filing, and cross-reference this inventory against the CSRC’s public database to identify any gaps or expirations.

5. Update offshore constitutional documents: Amend the Cayman or BVI holding company’s articles of association to include a PRC law governing clause and a CIETAC arbitration provision, and appoint at least one independent director with demonstrable PRC regulatory experience before the filing submission.