The Outlook for the Mainland and Hong Kong Capital Markets in 2019

STIB will play a crucial role in filling gaps in the capital markets. In the past, numerous entrepreneurial-innovative/science and technology/new economy sector enterprises would opt for overseas capital markets, but the establishment of STIB will have a huge impact on the listing options for new economy companies and the investment orientation of investment firms. Additionally, some overseas China concept share companies may encourage a new wave of companies returning home. The implementation of the registration system is also an opportunity for Chinese capital markets to intensify reform and open the market, as well as a means of showing the increasing marketization of the capital markets, which will further improve capital market functions, improve capital market mechanisms and enhance capital market efficiency.

2 . CDR

On March 22, 2018, the General Office of the State Council transmitted the China Securities Regulatory Commission, Several Opinions on Launching a Pilot Project for the Domestic Offering of Stocks and Depository Receipts by Innovative Enterprises, setting forth preliminary provisions on the basic framework and the offering conditions for Chinese depositary receipts (CDRs). On June 6, 2018, the China Securities Regulatory Commission (CSRC) issued the Measures for the Administration of the Offering and Trading of Depository Receipts (Trial Implementation) and seven other complementary regulations, providing more specific provisions on the offering and trading of CDRs, signaling the official entry of the CDR system into the implementation stage. The following day, the Xiaomi Corp. became the first enterprise to submit an application for offering CDRs. According to media reports, famous offshore red-chip listed enterprises such as Baidu, Alibaba, Tencent Holdings and JD.com were also preparing to offer CDRs.

Although no enterprise has successfully offered CDRs in the six months after the first submission by Xiaomi Corp. (due to the continuing slide in the A-share markets and the slowdown in offerings of new shares), the offering of CDRs is an imperative move. The effect of CDRs on Chinese enterprises are discussed below:

(1) For Chinese enterprises listed abroad as red chips, CDRs offer them a convenient channel to return to A-shares. As the A-share markets do not accept the offering and listing of shares by companies whose place of registration is not China, previously, the only option for red-chip listed enterprises wishing to return to A-shares was to privatize, withdraw from the market and dismantle their red chip structures. Before the roll out of the CDR system, for offshore listed enterprises contemplating privatization and returning to A-shares, the costs were huge, the process long and the policies uncertain, and exposing enterprises to relatively high risks. CDRs are a relatively convenient, low-cost and low-risk system arrangement that permits the realization of a listing and financing on Chinese securities markets without requiring offshore privatization and market withdrawal. Particularly for “unicorn” red-chip listed enterprises with a huge market valuation, returning to A-shares has become practicable and attractive.

(2) For innovative enterprises that have yet to realize a profit, CDRs offer them the possibility of listing and financing on Chinese securities markets. One of the key reasons for Chinese enterprises to opt to list abroad as red chip is that they have yet to realize a profit, making it impossible for them to satisfy the conditions for an A-share listing and financing. The CDR system breaks through the profitability restriction, but sets high threshold conditions, putting such offerings beyond the reach of enterprises that are relatively small or whose business prospects are average. Currently, there are three types of enterprises that satisfy the conditions for offering CDRs: (i) large red-chip enterprises listed abroad that have a market valuation of not less than Rmb200 billion; (ii) innovative enterprises that have not listed abroad (including red-chip enterprises that are registered abroad but whose main business activities are conducted in China and enterprises registered in China) and whose operating revenues for the last year were not less than Rmb3 billion and that have a valuation of not less than Rmb20 billion; and (iii) enterprises with rapidly increasing operating revenues, that have their self-developed internationally leading technologies and that stand in a relatively advantageous position in competition with their peers.

(3) For red chip enterprises that wish to preserve a special control structure, CDRs offer them flexible room. Many red chip enterprises, to satisfy business requirements, have conducted multiple rounds of financing or carried out employee incentives, continuously diluting the founder's shareholding percentage. To maintain control of the enterprise, special arrangements need to be made in respect of the voting rights attached to the shares held by the founder. Under the system arrangements of the PRC Company Law, shareholders are required to maintain a situation where shares of the same class have the same rights, in other words, all holders of the same class of shares are required to have equivalent rights. Under the CDR system, a red chip enterprise is permitted to have differential voting rights, provided that it complies with laws and regulations such as the company law of its foreign place of registration, but it is required to fully disclose in a detailed manner relevant details and risks in a prominent place in public offering documents such as the prospectus.

CDRs have important significance for expanding the portfolio of domestic investors and improving the market structure. Due to historical factors such as the market offering system and China's economic structure, the cyclical segment represented by finance and real estate has, for a long time, consistently accounted for a fairly great weight on the A-share markets. In contrast, CDRs will focus on emerging industry companies that have been validated in overseas markets and have genuine core technologies or unique business models, and effectively expand the scope of investment on the domestic stock markets, permitting domestic investors to better share in the fruits of economic transformation and causing the market structure to improve.

After the issuance of the CDR rules, certain well known internet enterprises have submitted or are planning to submit applications to the CSRC. Affected by the volatility in the domestic capital markets, the approval and offering of CDRs have been put in abeyance, but, with the implementation of STIB and the registration system, CDRs will have a new beginning and inject new vigor into the A-share markets.

II . NEW TRENDS IN THE BUSINESS SECTORS OF A-SHARE LISTED COMPANIES

1 . Improvement of the Share Buyback System

The Standing Committee of the National People's Congress, Decision on Amending the PRC Company Law was adopted at the Sixth Session of the Standing Committee of the 13th National People's Congress on October 26, 2018, making specific revisions to Article 142 of the Company Law on the buyback of company shares. The amended Company Law appropriately supplements and improves the conditions under which share buybacks are permitted and simplifies the decision making process for a share buyback. On November 9, 2018, the CSRC, the Ministry of Finance and the State-owned Assets Supervision and Administration Commission of the State Council jointly issued the Opinions on Supporting Listed Companies in Buying Back Their Shares, further providing policy support for the buyback by listed companies of their shares.

After the slide in China's stock markets in 2018, and the revision of the Company Law and the issuance of the Opinions on Supporting Listed Companies in Buying Back Their Shares permitting listed companies to buy back their shares in order to safeguard their overall market value and the shareholder rights and interests of small and medium investors, it is anticipated that more listed companies will carry out share buybacks in future.

2 . Relaxation of Refinancing Conditions

In November 2018, the CSRC revised and issued the Questions and Answers on the Oversight of Offerings: Regulatory Requirements for Regulating and Guiding the Financing Acts of Listed Companies (the Q&As). The revised Q&As, (i) provide the regulatory requirements for using offering proceeds to supplement working capital and repay debts; and (ii) revise the interval between financings. The stance of regulators on refinancing by listed companies has consistently been strict, but the revised Q&As relax the conditions for refinancing and loosen the restrictions on using offering proceeds to supplement working capital and pay back bank loans. For numerous listed companies that have an urgent need for financing on capital markets, this is a major plus, it is anticipated that the activity in the refinancing market will increase as compared to past years.

3 . Encouragement of Acquisitions and Restructurings

In November 2018, the CSRC also issued a new policy permitting listed companies to use targeted convertible bonds as an acquisition payment instrument, encouraging listed companies to become better and stronger through acquisitions/restructurings. Since the issuance of the new policy, there have already been some listed companies that have published plans to offer targeted convertible bonds and shares to purchase assets. The use of targeted convertible bonds as a payment instrument enhances flexibility in the transaction plan design, reduces funding pressures, is conducive to the purchaser and seller eliminating their differences and reaching agreement on the transaction, and is also conducive to reducing share price volatility that results in deals falling apart. The outlook is that an increasing number of listed companies will use targeted convertible bonds in future to carry out acquisitions/restructurings.

4 . Opening up of the Foreign Investment Sector

At a regular news conference on October 25, 2018, Gao Feng, spokesperson for the Ministry of Commerce, pointed out that, in the first half of 2018, China became the world's largest receiver of foreign direct investment, and the Ministry of Commerce would accelerate the legislative process for the Foreign Investment. Law, continuously enhance the level of investment liberalization and convenience, maintain the stability, fairness, transparency and predictability of foreign investment policy, better protect the lawful rights and interests of foreign-invested enterprises in China, provide convenient services for foreign investment and continuously strengthen the investment confidence of foreign investors.

In 2018, affected by various internal and external factors, the opening of China's foreign investment sector continued to expand, e.g. the relaxation in the financial sector, the shrinking of the foreign investment negative list, the revision of the rules for strategic investments in listed companies by foreign investors, etc. Taking all these factors into consideration, the foreign investment sector will remain active in the next 12 months. These changes will also be reflected in the listed company sector.

III. HONG KONG LISTING BOOM

On April 30, 2018, the HKEx revised its Listing Rules, and, briefly stated, the revisions made three achievements: (i) they permit the listing of biotechnology enterprises that have yet to realize revenues; (ii) they permit companies with weighted voting rights structures to list; and (iii) they establish a new second listing channel for Greater China and international companies that are seeking a second listing in Hong Kong. An analysis of the impact of the HKEx's revision of its Listing Rules on Chinese enterprise is discussed below:

1 . To apply to list on the main board of the HKEx, a company needs to have a revenue of at least HK$500 million in the past year, or on the Growth Enterprise Market, a total revenue of at least HK$20 million in the past two years. As Chinese biotechnology companies are still in their early development stage and without an operating revenue are unable to satisfy the conditions for seeking financing (whether it is offering A-shares or CDRs) in China's securities markets. Chinese biotechnology enterprises still in their startup phase have become very active in opting to list and seek financing in Hong Kong after the implementation of the special listing conditions for biotechnology enterprises by the HKEx. As at the end of October, more than 10 Chinese biotechnology enterprises had submitted listing applications to the HKEx, four of which have secured approval to list.

2 . Before revision of the rules, the Hong Kong market, like the Chinese market, required the shares of the same class of a listed company to carry the same rights. As stated in the analysis of the impact of the CDR system on Chinese enterprises, for enterprises proposing to list and the shareholding percentage of whose founder is relatively low, a special arrangement needs to be made for the voting rights attaching the stock held by the founder to allow the founder to maintain control of the enterprise. In the past, because of their weighted voting rights structures, some red chip enterprises, when electing to list abroad, had no choice but to forego Hong Kong and go to other securities markets. Since the revision of the rules, Hong Kong has become one of the listing places available to red chip enterprises with weighted voting rights structures.

3 . With a view to attracting companies in emerging and innovative industries that are already listed on major stock exchanges such as the New York Stock Exchange, Nasdaq or the London Stock Exchange to make a second listing in Hong Kong, the revised Listing Rules of the HKEx offer a convenient channel and relaxed conditions for those seeking a second listing in Hong Kong. Chinese enterprises that did not opt to list in Hong Kong in the past for various reasons may, when the opportunity is ripe, opt for a second listing to seek financing in the Hong Kong market.

The above reforms adopted by the HKEx in April 2018 have greatly increased the attractiveness of the Hong Kong stock market. According to statistics, the total IPO proceeds raised in the first three quarters of 2018 on the Stock Exchange of Hong Kong reached US$30.7 billion, by the far the most globally. Between January and October 2018, a total of 185 companies listed in Hong Kong, an increase of 41.2% over the 131 companies for the same period last year; and proceeds from initial public offerings totaled HK$255.7 billion, an increase of 186.6% as compared to the HK$89.2 billion for the same period last year, and an increase of almost 100% as compared to the total proceeds of HK$129 billion for all of last year. The Hong Kong stock market is one of the world's mature capital markets, and in the next 12 months, the HKEx will continue to maintain a relatively lively head of steam.

Xiaoming Song, Partner

Zhong Lun Law Firm

Xiaoming Song graduated from the Tsinghua University Law School, his major practice areas focus on Capital Market/Securities, M&A, PE Investment & Founding.

Mr Song has worked as a lawyer for more than 10 years and has practical experience in all aspects of the domestic Chinese capital market, especially in IPOs, backdoor listing, refinancing or M&A of listed companies, targeted offerings, listing on NEEQ, red-chip/VIE restructuring, and privatization of overseas listed companies.

Tao Liu, Non-equity Partner

Zhong Lun Law Firm

Tao Liu graduated from the University of International Business and Economics (UIBE) Law School. His major practice areas focus on Capital Market/Securities, M&A, Banking & Finacing.

Mr Liu has worked as a lawyer for more than 10 years and has experience in capital market transactions, specializing in domestic and overseas IPOs, refinancing/M&A of listed companies, PE/VC investment, and corporate compliance. Mr Liu has a PhD in law and since 2013, has been a part-time tutor for the juris master course at the UIBE law school.

2018年以来，内地证券监管部门以及香港联交所在资本市场领域相继推出了一系列积极的政策。从这些新政策可以看出，完善我国资本市场制度与结构的力度在逐步加大：一方面，监管层逐步放宽监管，激发市场活力；另一方面，优化体系，让资本市场的发展变得更加理性与健康。以下对中国资本市场的一些重要趋势做简要提示，以期对未来有所展望。

一、A股上市新动向

1、科创板

2018年11月5日，国家最高领导人习近平宣布在上海证券交易所设立科创板并试点注册制。

一方面，科创板弥补了国内资本市场的空白，对于中国的双创/科技/新经济领域的企业来讲，以前更多的选择是海外的资本市场，而科创版设立后，对于新经济公司的上市选择、投资机构的投资方向将会产生巨大影响。同时一些海外的中概股公司也有可能掀起又一次回归浪潮。另一方面，注册制的实施是中国资本市场加大改革开放的契机，也是资本市场更加市场化的一种表现方式，将进一步改善资本市场功能、完善资本市场机制、提高资本市场效率。

2、CDR

国务院办公厅于2018年3月22日转发了《证监会关于开展创新企业境内发行股票或存托凭证试点若干意见》的通知，对CDR的基本框架和发行条件作了初步规定。2018年6月6日证监会发布了《存托凭证发行与交易管理办法 (试行)》及配套的其他七项法规制度，对CDR的发行及交易作了进一步明确规定，CDR制度正式进入实施阶段，隔日小米集团即作为第一家企业提交了发行CDR的申请。据媒体报道，百度、阿里巴巴、腾讯控股、京东等著名境外红筹上市企业也在筹备发行CDR。

从第一家企业提交CDR发行申请至今已过半年，受A股市场持续下跌、新股发行放缓的影响，虽然尚未有一家企业发行成功CDR，但我们相信CDR发行是势在必行的一项举措。我们理解，CRD对中国企业的影响主要体现在以下几个方面：

（1）对于已经在境外红筹上市的中国企业，CDR提供了便捷的回归A股渠道。由于A股市场不接受注册地在中国以外的公司发行股份并上市，在此之前，红筹上市企业回归A股只能采取私有化退市、拆除红筹架构的方式。CDR制度推出之前，境外上市企业私有化回A股，成本巨大、流程较长、政策也存在不确定性，对企业风险较大。CDR是一个相对便捷、廉价、低风险的制度安排，可以在不实施境外私有化退市的情况下实现在中国证券市场上市及融资，特别是对于市值巨大的“ 独角兽” 红筹上市企业，回归A股变得具有可操作性和吸引力。

（2）对于尚未盈利的创新企业，CDR提供了在中国证券市场上市融资的可能性。中国企业选择境外红筹上市重要原因之一是企业尚未盈利，无法满足A股上市融资的条件。CDR制度突破了盈利限制，但是设置了很高的门槛条件，规模较小或经营前景一般的企业难以企及。目前，符合CDR发行条件的企业有三类：第一，已在境外上市的大型红筹企业，市值不低于2000亿元人民币；第二，尚未在境外上市的创新企业 (包括注册地在境外、主要经营活动在境内的红筹企业和境内注册企业)，最近一年营业收入不低于30亿元人民币且估值不低于200亿元人民币；第三，营业收入快速增长，拥有自主研发和国际领先技术，同行业竞争中处于相对优势地位的企业。

（3）对于要保持特殊控制权结构的红筹企业，CDR提供了灵活的空间。很多红筹企业为了满足经营需要，进行了多轮融资或者进行员工激励，创始人持股比例不断被稀释，为了保持对企业的控制力，需要对创始人所持股票的投票权进行特殊安排。在中国《公司法》的制度安排下，股东之间需要保持“ 同股同权”，即同一类股票的持有人应具有同等权利。在CDR制度下，允许红筹企业在符合境外注册地公司法等法律法规的前提下，存在投票权差异，但应在招股说明书等公开发行文件显要位置充分、详细披露相关情况及风险。

CDR对于拓宽国内投资者投资范围、完善市场结构具有重要意义。由于市场发行制度和我国经济结构等历史原因，长期以来，以金融、地产为代表的周期性板块一直在A股市场中占有较高的权重。而CDR将聚焦于经过海外市场验证的、拥有真正核心技术或独特商业模式的新兴产业公司，有效扩大国内股票市场的可投资范围，使国内投资者可以更好地分享经济转型成果，完善市场结构。

CDR规则出台后，部分著名的互联网企业向中国证监会提交了或计划提交申请，虽然受境内资本市场波动的影响，CDR的审批发行暂缓，但随着科创板以及注册制的落地，相信CDR也将重新出发，为A股市场注入新的活力。

二、A股上市公司业务领域的新趋势

1、完善股份回购制度

2018年10月26日，第十三届全国人大常委会第六次会议审议通过了《全国人民代表大会常务委员会关于修改<中华人民共和国公司法>的决定》，对《公司法》第一百四十二条有关公司股份回购的规定进行了专项修改。修改后的《公司法》适当补充完善了允许股份回购的情形，简化了股份回购的决策程序。2018年11月9日，中国证监会、财政部及国资委联合公布了《关于支持上市公司回购股份的意见》，进一步为上市公司回购股份提供了政策支持。

2018年中国股市震荡下行，《公司法》修改及《关于支持上市公司回购股份的意见》出台后，允许上市公司为维护公司整体价值及广大中小投资者股东权益进行股份回购，预计未来将有更多上市公司进行股份回购。

2、放宽再融资条件

2018年11月，中国证监会修订发布《发行监管问答——关于引导规范上市公司融资行为的监管要求》(以下简称“《监管问答》”)。修订后的《监管问答》，一是明确使用募集资金补充流动资金和偿还债务的监管要求；二是对再融资时间间隔的限制做出调整。一直以来，监管部门对上市公司再融资趋向严格，本次《监管问答》的修改放松了再融资条件，放宽了以募集资金补充流动资金和偿还银行贷款的限制，对众多急需在资本市场融资的上市公司而言是重大利好，预计再融资市场的活跃度较之往年会有所提升。

3、鼓励并购重组

2018年11月，中国证监会还发布新政，允许上市公司以定向可转债作为并购支付工具，促进上市公司通过并购重组做优做强。新政出台后已经有上市公司发布了以发行定向可转债和股份购买资产的方案。定向可转债作为支付工具，增强了交易方案设计的弹性，降低了资金压力，有助于买卖双方消除分歧达成交易，同时也有助于减少股价波动而导致的交易破裂。相信未来会有越来越多的上市公司采用定向可转债进行并购重组。

4、外商投资领域扩大开放

在2018年10月25日商务部的例行新闻发布会上，发言人高峰指出，2018年上半年，中国成为世界第一大外国直接投资的流入国，商务部将加快推进《外国投资法》的立法进程，不断提高投资自由化和便利化的水平，保持外资政策的稳定、公平、透明、可预期，更好地保护在华外商投资企业的合法权益，为外商投资提供更便利的服务，不断增强外国投资者投资信心。

2018年，受内外部多种因素影响，中国外商投资领域的开放力度不断加大，如金融领域的开放、外商投资负面清单的缩小、外国投资者战略投资上市公司规则的修订等，相信在未来12个月内，外商投资领域将会保持活跃态势。这些变化也将反映到上市公司领域。

三、香港上市热潮

香港联交所于2018年4月30日修订了《上市规则》，简而言之，该次修订包括三个方面的内容，一是允许尚未有收入的生物科技公司上市，二是允许拥有不同投票权架构的公司上市，三是为寻求在香港作第二上市的大中华及国际公司设立新的第二上市渠道。我们重点围绕这三个方面的内容，分析香港联交所修改《上市规则》对中国企业的影响。

1、申请去香港联交所上市，主板需满足最近一年收入至少5亿港元，创业板需满足最近两年收入合计至少2000万港元。对于处于早期发展阶段无营业收入的中国生物科技公司，目前无法满足在中国证券市场融资的条件 (无论是发行A股或CDR),因此，香港联交所对于生物科技公司实行特别上市条件后，处于初创阶段的中国生物科技公司选择去香港上市融资变得十分积极。截至10月末，已经有超过10家中国生物科技公司向香港联交所提交了上市申请，其中4家已经获准上市。

2、在修订规则之前，香港市场与中国市场一样，对于上市公司要求“ 同股同权”。如我们在分析CDR制度对中国企业的影响中所述，对于创始人持股比例较低的拟上市企业，为了保持对企业的控制力，需要对创始人所持股票的投票权进行特殊安排。之前因为存在不同的投票权架构，一些红筹企业选择境外上市地时，不得不放弃香港，而是去其他证券市场。规则修订之后，对于不同投票权架构的红筹企业，香港成为可选择的上市地之一。

3、为了吸引在纽约证券交易所、纳斯达克或伦敦证券交易所等主要证券市场已经上市的新兴及创新产业的公司来香港作第二上市，香港联交所新修订的上市规则对于寻求在香港作第二上市企业提供了便利的渠道和更宽松条件。对于之前因为各种原因未选择香港上市的中国企业，可能会在合适的时机选择在香港市场再次上市融资。

香港联交所2018年4月的上述改革使得港股市场的吸引力大大增强。据统计，香港联交所2018年前三季度的IPO总募集金额达307亿美元，高居全球首位。2018年1月到10月，共有185家公司在香港上市，较去年同期的131家上升41.2% ；首次公开招股集资金额为2557亿港元，较去年同期的892亿港元增加186.6%，较去年全年募资总额1290亿港元几乎增长一倍。港股市场是全球范围内的成熟资本市场之一，预计在未来12个月，香港联交所将继续保持较为火爆的势头。

宋晓明 合伙人

中伦律师事务所

宋晓明律师毕业于清华大学法学院，业务领域包括资本市场/证券、收购兼并、私募股权与投资基金。

宋晓明律师在业务一线从事专职律师工作十余年，在境内资本市场全领域均有丰富经验，尤其擅长通过IPO或借壳方式上市、上市公司再融资及并购、新三板挂牌及定向增发、搭建红筹架构/VIE架构、境外上市公司私有化及拆除境外架构。

刘涛 非权益合伙人

中伦律师事务所

刘涛律师毕业于对外经济贸易大学法学院，业务领域包括资本市场/证券、收购兼并、银行与金融。

刘涛律师在其10余年律师工作中参与主办了大量的资本市场项目，擅长境内外证券发行上市、上市公司再融资、PE/VC机构股权投资与收购、企业常年法律顾问服务等。刘涛律师于2013年取得对外经济贸易法学博士学位，并受聘成为该校法学院法律硕士校外兼职导师。