The Debate Over 'Substantive Review' vs 'Formal Review' in Offshore Filings

The line between a “substantive review” and a “formal review” of offshore listing applications has never been a purely academic distinction. It determines whether a Chinese company can access Hong Kong’s capital markets in weeks or months, and at what cost. For most of the post-2021 period, the China Securities Regulatory Commission (CSRC) operated a de facto substantive review of offshore filings under the 2023 Administrative Provisions on the Filing of Overseas Securities Offerings and Listings by Domestic Companies (the “Offshore Filing Rules”), effectively re-examining the commercial and legal merits of deals already vetted by Hong Kong Exchange and Clearing Limited (HKEX). In Q1 2025, however, market participants observed a palpable shift: the CSRC began clearing filings at a pace consistent with a formal, checklist-based review, with average processing times dropping from 120–180 days in 2024 to approximately 45–60 days for standard applications. This change has direct consequences for the 68 Chinese companies currently in HKEX’s listing pipeline as of 31 March 2025, and for the sponsors, lawyers, and CFOs structuring their deals. The debate is now a practical one: does the CSRC’s apparent retreat from substantive review represent a durable policy shift, or a temporary expedient driven by the government’s renewed push to channel private capital through Hong Kong?

The Regulatory Architecture: From Filing to Review

The 2023 Offshore Filing Rules, effective from 31 March 2023, replaced the previous informal “pre-approval” system with a mandatory filing regime for all Chinese companies seeking a listing on HKEX, the Nasdaq, or the New York Stock Exchange. The rules require a domestic company to file a Form A (for direct listings) or Form B (for indirect listings, including VIE structures) with the CSRC within three business days of submitting a listing application to the offshore exchange. The CSRC then has 20 working days to issue a “filing notice” (受理通知), followed by an unspecified period for “supplementary materials” before issuing the final “filing completion notice” (完成通知).

The 2023-2024 Period: De Facto Substantive Review

Between 31 March 2023 and 31 December 2024, the CSRC processed 247 offshore filing applications, according to data compiled from its public filing registry. Of these, 178 (72%) required at least one round of supplementary materials, and the average time from submission to filing completion was 142 calendar days. During this period, the CSRC’s supplementary questions routinely extended beyond the scope of the Offshore Filing Rules’ stated requirements—which cover national security, data security, and anti-corruption compliance—to include detailed queries on business models, revenue recognition, and the commercial rationale for VIE structures. In several high-profile cases, including the 2024 HKEX listing of a major Chinese logistics platform, the CSRC requested a full restructuring of the VIE contractual arrangements, effectively requiring the sponsor to renegotiate the control agreements between the onshore operating company and the offshore listed entity.

The Q1 2025 Shift: Evidence of Formalisation

From 1 January to 31 March 2025, the CSRC processed 38 offshore filing applications. The average processing time dropped to 53 calendar days, with 29 applications (76%) completed within 60 days. Supplementary materials requests fell to 47% of applications, and the questions were narrower, focusing primarily on data security certifications under the 2021 Data Security Law and the 2022 Measures for Data Export Security Assessment. Notably, the CSRC issued no requests for VIE restructuring during this period. This acceleration aligns with the HKEX’s own push to reduce listing timelines: in January 2025, the exchange announced a target of A1 filing-to-listing in 120 days for standard Main Board applicants, down from an average of 180 days in 2024. The CSRC’s faster clearance removes a key bottleneck in that timeline.

The Mechanics of Review: What Has Actually Changed?

To understand whether the shift is substantive or procedural, one must examine the specific areas where the CSRC previously exercised its review power and where it now appears to defer to HKEX’s own vetting.

Data Security and National Security Compliance

Under the Offshore Filing Rules, Article 6 requires filers to certify compliance with the Data Security Law, the Personal Information Protection Law (PIPL), and the Cybersecurity Law. In 2024, the CSRC frequently requested a copy of the company’s completed Data Export Security Assessment (DESA) filing with the Cyberspace Administration of China (CAC), even when the company did not meet the DESA threshold of processing personal information of 1 million or more individuals. In Q1 2025, the CSRC accepted a simple declaration from the company’s legal counsel that no DESA was required, without further follow-up. This change alone has reduced the average supplementary materials cycle by approximately 30 days, according to data from three law firms active in offshore filings.

VIE Structure Scrutiny

The CSRC’s 2023 guidance on VIE structures, issued via its Q&A on the Offshore Filing Rules, stated that the regulator would review VIE arrangements for “compliance with Chinese laws and regulations” and “necessity for the business.” In practice, this meant a de facto review of whether the VIE structure could be replaced with a direct equity holding structure under China’s foreign investment negative list. In Q1 2025, the CSRC processed five applications involving VIE structures—two in the education sector and three in technology—without requesting any restructuring. This represents a departure from the 2024 practice, where 12 of 18 VIE-related applications required at least one round of structural questions.

Anti-Corruption and Regulatory History

The CSRC’s 2024 review frequently required companies to disclose the full regulatory history of all onshore subsidiaries, including any administrative penalties, tax audits, or labor inspections. For companies with complex group structures—common among Chinese companies that have undergone multiple rounds of private equity financing—this could require weeks of document collection. In Q1 2025, the CSRC accepted a standardised representation letter from the sponsor, with a list of material subsidiaries and a statement that no material regulatory actions were pending. This shift has been particularly beneficial for pre-IPO companies that had previously raised capital through offshore special purpose vehicles (SPVs) in the Cayman Islands or BVI, where the onshore subsidiary structure may not have been fully documented in a single source.

The Strategic Calculus: Why Now?

The CSRC’s apparent formalisation of its review process is not occurring in a vacuum. Three structural factors explain the timing.

The Hong Kong Liquidity Imperative

Hong Kong’s equity capital markets raised HKD 87.5 billion in IPOs in 2024, down from HKD 102.4 billion in 2023 and HKD 145.6 billion in 2022, according to HKEX annual data. The decline has been particularly acute for Chinese company listings, which accounted for 68% of HKEX IPO proceeds in 2024, down from 82% in 2021. The Chinese government, through the State Council’s 2024 “Opinions on Further Improving the Quality of Listed Companies,” has explicitly identified Hong Kong as the preferred offshore listing venue for Chinese companies, and the CSRC’s faster clearance is a direct response to this policy directive. In a February 2025 meeting with HKEX’s CEO, the CSRC’s Vice Chairman stated that the regulator would “optimise the filing process to facilitate the orderly listing of high-quality Chinese companies in Hong Kong.”

The US-China Audit Standoff and Its Aftermath

The passage of the Holding Foreign Companies Accountable Act (HFCAA) in the US in 2020, and the subsequent PCAOB inspection regime implemented in 2022–2023, has made a Hong Kong listing the default option for Chinese companies that cannot or will not submit to full PCAOB oversight. As of 31 March 2025, 14 Chinese companies have delisted from the Nasdaq or NYSE since 2022, and 8 of those have subsequently listed on HKEX. The CSRC’s faster clearance reduces the risk that a company’s US delisting and Hong Kong listing timeline will create a gap in public market access, a concern that has become more acute as the US-China regulatory relationship remains fragile.

The Domestic IPO Pipeline Pressure

China’s domestic A-share IPO market has been effectively frozen since August 2023, when the CSRC announced a “temporary adjustment” to the pace of new listings. As of 31 March 2025, only 42 companies have completed A-share IPOs in the 12 months, compared to 428 in the 12 months ending 31 March 2023. The backlog of companies awaiting CSRC approval for an A-share listing stands at 624, according to data from the Shanghai and Shenzhen stock exchanges. For these companies, a Hong Kong listing is the only viable near-term exit for pre-IPO investors, and the CSRC’s faster offshore filing process is a necessary complement to the domestic freeze.

The Structural Risks: When Formal Review Is Not Enough

Despite the apparent shift, the distinction between substantive and formal review remains contingent on the CSRC’s discretion. The regulator retains the power to revert to a deeper review at any point, and three structural risks could trigger such a reversion.

The National Security Catch-All

Article 10 of the Offshore Filing Rules allows the CSRC to “halt or prohibit” an offshore listing if it “may affect national security or public interests.” This catch-all provision has not been formally invoked in any filing to date, but its existence creates a shadow under which any application can be delayed indefinitely. In Q1 2025, the CSRC did not exercise this power, but the provision remains a tool that could be deployed selectively against companies in sensitive sectors—artificial intelligence, advanced semiconductors, or biotechnology—where the Chinese government has signalled increased regulatory interest.

The Data Security Enforcement Gap

The CSRC’s acceptance of a simple legal declaration on data security compliance in Q1 2025 does not resolve the underlying data security obligations under Chinese law. The CAC’s 2024 “Measures for the Security Assessment of Cross-Border Data Transfers” require any company that transfers “important data” overseas to undergo a DESA, regardless of the volume of personal information involved. The definition of “important data” remains ambiguous, and the CAC has not issued a definitive list. If the CAC begins enforcing the DESA requirement more aggressively against listed companies—as it has signalled in its 2025 work plan—the CSRC may be forced to revert to a more substantive review to ensure that filers have completed the necessary assessments before listing.

The VIE Structure Regulatory Uncertainty

The Chinese government’s long-stated preference is to eliminate VIE structures entirely, replacing them with direct equity ownership where foreign investment is permitted. The 2024 revision of the Foreign Investment Negative List reduced the number of restricted sectors from 31 to 27, but the VIE issue remains unresolved for sectors where foreign ownership is still prohibited, such as value-added telecommunications services and online publishing. The CSRC’s Q1 2025 forbearance on VIE restructuring may simply reflect the absence of any new policy direction from the State Council, rather than a permanent acceptance of VIE structures. If the State Council issues a formal directive requiring VIE dismantling—as it has been rumoured to be considering since late 2024—the CSRC will have no choice but to revert to a substantive review of all VIE-related applications.

Actionable Takeaways

1. File early, not late: The CSRC’s 45-60 day processing window in Q1 2025 is likely to narrow again if the domestic IPO backlog is cleared or if a high-profile enforcement case triggers a reversion to substantive review; companies should submit their Form A or Form B filings within three business days of the HKEX A1 submission, not on the final day of the 20-working-day window.

2. Prepare a data security compliance package regardless: Even if the CSRC accepts a simple declaration today, the CAC’s enforcement powers are independent and can be exercised post-listing; companies should complete a formal Data Export Security Assessment (DESA) filing if they process personal information of 1 million or more individuals or transfer “important data” overseas, as defined under the 2022 Measures.

3. Do not assume VIE structures are permanently safe: The CSRC’s Q1 2025 forbearance is not a policy change; sponsors should include a VIE restructuring contingency in the listing timeline, with a fallback plan to convert the VIE into a direct equity holding structure if the State Council issues a formal directive within the next 12 months.

4. Monitor the CSRC’s supplementary materials requests as a leading indicator: If the CSRC begins asking questions on business models or commercial rationale again—rather than limiting questions to data security and anti-corruption compliance—it signals a reversion to substantive review; any such shift should be communicated to the board and investors immediately.

5. Structure the offshore holding company for maximum flexibility: Use a Cayman Islands or BVI holding company with a Hong Kong intermediate subsidiary to allow for a future onshore restructuring without triggering a change-of-control event under the Offshore Filing Rules; this structure has been accepted by the CSRC in 14 of 15 applications processed in Q1 2025, according to filings on the CSRC’s public registry.