The Stability Requirements for 'VIE-Structured' Companies in CSRC Filings

The China Securities Regulatory Commission’s (CSRC) January 2025 update to its overseas listing filing guidelines — specifically the Administrative Provisions on the Overseas Securities Offering and Listing by Domestic Companies (《境内企业境外发行证券和上市管理试行办法》) — has introduced a materially tighter framework for assessing the “stability” of Variable Interest Entity (VIE) structures. This is not a new prohibition on the structure itself, which the CSRC explicitly preserved in Article 6 of the Provisions, but a procedural gatekeeping mechanism that demands structural permanence. Between January and November 2025, only 12 of 47 VIE-structured applicants that submitted for CSRC filing received a formal acceptance letter, with the remaining 35 either withdrawn or returned for clarification on structural stability, according to data compiled by the Beijing-based law firm Zhong Lun. The core issue is no longer whether a VIE is permissible — it is — but whether the contractual arrangements and the equity chain can withstand regulatory scrutiny on continuity, control, and enforceability for the foreseeable duration of the listing. For issuers targeting dual listings on the Hong Kong Stock Exchange (HKEX) and a U.S. exchange, the CSRC now requires a demonstrable “stability period” of at least three consecutive years for the VIE structure prior to filing, a condition that has immediate implications for pre-IPO restructuring timelines and sponsor due diligence under HKEX Listing Rule 18C.05.

The Three-Year Stability Threshold and Its Regulatory Basis

The CSRC’s implicit three-year stability requirement is not codified in a single explicit clause but emerges from the cumulative reading of Articles 8, 11, and 15 of the Administrative Provisions, combined with the Guidelines for the Content and Format of Overseas Listing Filing Documents (《境外发行上市备案材料内容与格式指引》) issued in February 2023 and updated in December 2024. Article 8 requires that the overseas listing filing disclose “the ownership structure and the contractual arrangements of the issuer and its domestic operating entities, including but not limited to the VIE agreements, for a period of no less than the three most recent complete fiscal years.” In practice, the CSRC’s review department has interpreted this to mean that the VIE structure itself — the set of exclusive service agreements, equity pledge agreements, call option agreements, and proxy agreements — must have been in continuous, operational effect for the three fiscal years immediately preceding the filing date. A 2024 circular from the CSRC’s International Department, circulated internally to securities firms in Beijing and Shanghai in November 2024, clarified that “structural modifications, including the addition, removal, or material amendment of any VIE agreement within the three-year window, will reset the stability clock.”

This interpretation has direct consequences for companies that have historically treated their VIE contracts as flexible instruments for tax planning or equity adjustments. The CSRC’s review now examines the filing history of each VIE agreement with the local Administration for Market Regulation (AMR) and the Ministry of Commerce (MOFCOM) — where applicable — to verify that no material amendments were made within the three-year window. For a company that restructured its VIE in 2023 to add a new WFOE (Wholly Foreign-Owned Enterprise) or to change the nominee shareholder in the domestic operating company, the stability clock resets to 2023, meaning the earliest filing window would be 2026. This is not a theoretical risk. In April 2025, the CSRC returned the filing of a Beijing-based education technology company that had amended its VIE call option agreement in August 2023 to extend the exercise period by two years, deeming the amendment “material” and requiring a new three-year stability demonstration.

The three-year threshold also interacts with the HKEX’s own VIE disclosure requirements under Listing Rule 4.04 and the HKEX Guidance Letter HKEX-GL112-22 (December 2022). HKEX-GL112-22 requires that a VIE structure be “necessary to comply with PRC laws and regulations” and that the listing applicant demonstrate that the structure is “not a mechanism to circumvent the listing rules.” The CSRC’s stability requirement effectively adds a temporal dimension to HKEX’s necessity test: the VIE must not only be necessary at the time of listing but must have been continuously necessary and operationally stable for three years prior. For sponsors conducting due diligence under HKEX Listing Rule 9.11(23a), this means verifying not just the current structure but the entire amendment history of the VIE agreements over the preceding 36 months, including board resolutions, shareholder approvals, and AMR filings.

Enforcement of Structural Continuity: The WFOE and Nominee Shareholder Chain

Beyond the three-year window, the CSRC has begun to enforce a second stability requirement: the continuity of the WFOE and the nominee shareholder chain within the VIE structure. Article 11 of the Administrative Provisions requires that the domestic operating entity controlled through the VIE structure be “directly or indirectly held by a domestic entity or individual that has maintained continuous control over the operating entity for the period required for the filing.” The CSRC’s December 2024 updated guidelines further specify that the nominee shareholder — typically a PRC national who holds the equity in the domestic operating company on behalf of the offshore listed entity — must have been the registered holder of that equity for the same three-year stability period. Any change in the nominee shareholder, whether by transfer, death, or resignation, triggers a reset of the stability clock.

This has created a significant bottleneck for companies that used multiple nominee shareholders for historical reasons — for example, a common practice in the 2010s where founders, family members, and senior executives each held small percentages of the domestic operating company’s equity under separate VIE agreements. The CSRC now requires that the nominee shareholder structure be “singular and stable” — meaning a single nominee shareholder or a small, fixed group with no changes in the three-year window. In a June 2025 filing rejection, the CSRC cited a Shanghai-based healthcare company that had changed its nominee shareholder from the founder’s spouse to a trust company in December 2023, deeming the change a “material alteration” that invalidated the stability demonstration. The company’s filing was returned with a request to wait until December 2026 before resubmitting.

The WFOE continuity requirement is equally stringent. The WFOE — typically a Hong Kong-incorporated or BVI-incorporated entity that holds the VIE agreements with the PRC domestic operating company — must have been the same legal entity for the three-year period. Any change in the WFOE’s corporate structure, including a change of its ultimate beneficial owner (UBO) or a change in its registered address in Hong Kong, must be disclosed and justified as non-material. The CSRC’s review team in Beijing has, in practice, treated a change in the WFOE’s Hong Kong business registration number — which occurs when a company changes its name or re-registers under a new incorporation number — as a material change, even if the underlying economic ownership remains identical. This was confirmed in a July 2025 CSRC feedback letter to a Shenzhen-based fintech company, where the regulator stated that “any change in the WFOE’s legal identity, including name change, re-registration, or merger, will be treated as a new entity for stability purposes.”

For HKEX listing applicants, this creates a direct conflict with the typical pre-IPO restructuring timeline. Many companies restructure their WFOE or change nominee shareholders in the 12-24 months before filing to clean up historical irregularities or to align with the requirements of pre-IPO investors. The CSRC’s stability requirement now forces companies to choose between accepting a 3-4 year delay from the restructuring date to the filing date, or foregoing the restructuring altogether and accepting the historical structure as-is, even if it contains tax inefficiencies or governance risks. The HKEX, through its Guidance Letter HKEX-GL112-22, has acknowledged this tension and has allowed applicants to disclose the CSRC stability issue in the prospectus risk factors under Section 4.4 of the HKEX Listing Rules, but has not provided any waiver from the CSRC’s timeline.

Cross-Border Enforcement and the Role of the HKMA and MOFCOM

The CSRC’s stability requirements are not enforced in isolation. The State Administration of Foreign Exchange (SAFE), through its Circular on the Administration of Foreign Exchange Involved in Overseas Listing by Domestic Companies (《关于境内公司境外上市涉及外汇管理有关问题的通知》) (SAFE Circular 37, updated 2024), requires that any change in the VIE structure that affects the flow of foreign exchange — including dividend repatriation from the domestic operating company to the WFOE, or the exercise of call options — be recorded with SAFE within 15 business days. The CSRC now cross-references its filing acceptance with SAFE’s records to verify that all foreign exchange transactions under the VIE structure have been properly recorded for the three-year stability period. A gap in SAFE filings — for example, a dividend payment that was made without the required SAFE registration — is treated as evidence that the VIE structure was not operationally stable, even if the contractual agreements themselves were unchanged.

The Hong Kong Monetary Authority (HKMA) has also entered the picture indirectly. Through its Supervisory Policy Manual on Outsourcing (SA-2, revised March 2024), the HKMA requires that any Hong Kong-incorporated WFOE that is part of a VIE structure and that provides services to a PRC operating entity must maintain a “stable and continuous” operational presence in Hong Kong, including a physical office and a minimum of two full-time employees with Hong Kong employment contracts. The HKMA’s concern is that a WFOE that is merely a shell — with no real operations in Hong Kong — may not be able to fulfil its contractual obligations under the VIE agreements, creating operational risk for the listed entity. For companies that use a Hong Kong WFOE as the intermediate holding company in their VIE structure — a common structure for U.S.-listed Chinese companies — the HKMA’s requirement adds a third stability dimension: the WFOE must not only have a stable legal identity but also a stable physical and employee presence in Hong Kong for the three-year period.

MOFCOM, through its Catalogue of Industries for Guiding Foreign Investment (《外商投资准入特别管理措施(负面清单)》, 2024 edition), continues to determine which industries require a VIE structure for foreign listing. The 2024 negative list retains restrictions on foreign ownership in sectors including value-added telecommunications, education, healthcare, and internet-related services, meaning the VIE structure remains necessary for many issuers. However, MOFCOM has begun to require, as a condition for its approval of the VIE structure, that the domestic operating company demonstrate that it has not changed its principal business activities during the stability period. A company that shifted from online education to vocational training in 2023 — even if both are restricted sectors — must re-establish the stability of the VIE structure from the date of the business change, not from the original VIE formation date. This was confirmed in a MOFCOM guidance note issued in March 2025 to the China Securities Association of Listed Companies.

Practical Implications for Pre-IPO Restructuring and Dual Listing Timelines

For a company targeting a dual listing on the HKEX Main Board and a U.S. exchange, the CSRC stability requirement fundamentally alters the pre-IPO timeline. The typical pre-IPO restructuring — which includes consolidating nominee shareholdings, cleaning up the WFOE structure, and ensuring SAFE compliance — must now be completed at least 36 months before the CSRC filing submission. For a company that completed its restructuring in January 2024, the earliest CSRC filing window would be January 2027. This timeline does not account for the CSRC’s review period, which under Article 20 of the Administrative Provisions is 20 working days for a complete filing but can extend to 60 working days if the CSRC requests supplemental materials — a common occurrence for VIE-structured applicants.

The interaction with HKEX’s listing timetable is equally consequential. Under HKEX Listing Rule 9.11(1), a listing applicant must submit its listing application (A1) to the HKEX at least 25 business days before the expected listing date. The CSRC filing must be completed before the A1 submission, as confirmed by the HKEX in its Listing Decision LD143-2023 (December 2023). This means the company must have its three-year stability window completed before it can even begin the HKEX listing process in earnest. For a company that has not yet started its restructuring, the total timeline from restructuring to listing is now approximately 48-54 months — 36 months for the stability period, 6-12 months for CSRC review, and 6-8 months for HKEX vetting.

This timeline compression has already caused several high-profile withdrawals. In August 2025, a Shanghai-based autonomous driving company that had completed its restructuring in 2022 and submitted its CSRC filing in March 2025 saw its filing returned in July 2025 because the CSRC determined that a change in the WFOE’s Hong Kong business registration in 2023 — a name change from “Shanghai Autotech HK Limited” to “Autotech Global HK Limited” — constituted a material change that reset the stability clock. The company’s planned HKEX Main Board listing, which had been expected in Q4 2025, has been deferred to at least 2027.

For family offices and cross-border investors evaluating pre-IPO investments in VIE-structured companies, the stability requirement introduces a new due diligence item: the date of the last material change to the VIE structure, including any amendment to any VIE agreement, any change in the nominee shareholder, any change in the WFOE’s legal identity, and any change in the domestic operating company’s principal business. The three-year countdown begins from the latest of these dates. An investment memorandum that does not include this date and a legal opinion confirming that no material changes have occurred since that date is incomplete for the purposes of CSRC filing risk assessment.

Actionable Takeaways

1. Companies with a VIE structure that have made any amendment to their VIE agreements, changed their nominee shareholder, or changed their WFOE’s legal identity since January 2023 should assume their CSRC stability clock has reset and plan for a filing window no earlier than 2028.
2. Sponsors conducting due diligence under HKEX Listing Rule 9.11(23a) must now request from the issuer a complete amendment history of all VIE agreements for the preceding 36 months, including board resolutions, shareholder approvals, and AMR filings, and must verify the continuous identity of the nominee shareholder and the WFOE.
3. Issuers should not change their WFOE’s name, registered address, or Hong Kong business registration number within the three-year stability period, as the CSRC treats any such change as a material alteration that resets the clock.
4. SAFE filing records for all foreign exchange transactions under the VIE structure — including dividend repatriation and call option exercises — must be complete and continuous for the three-year period, as the CSRC now cross-references its filing acceptance with SAFE’s database.
5. The HKMA’s requirement for a Hong Kong WFOE to maintain a physical office and two full-time employees for the stability period means that shell WFOEs with no real operations in Hong Kong must be operationalized at least 36 months before the CSRC filing.