In addition, the PRC State Council and relevant competent authorities including the CSRC severally or jointly promulgated several other regulatory documents that lay down specific requirements for H-share companies on issues such as the corporate governance, on-going disclosure obligations, foreign exchanges, reduction of state stockholding and the centralized registration and deposit of shares not listed overseas.[19]

　　In view of the above, the regulatory framework for DIRECT OVERSEAS LISTING includes three levels. Article 238 of the PRC Securities Law （2005 Revision） serves as the legal and regulatory basis, the fundamental regulatory regimes are established by the Special Provisions and the specific regulatory standards and requirements are provided by other regulatory documents such as the Guidelines on Listing on the HKGEM, the Notice on Listing on Overseas Main Boards and the Mandatory Provisions, etc. These regualtory documents have four paralled functions, i.e. the regulation of issuance and overseas listing of H shares, on-going disclosure requirements, requirements of corporate governance and compliant operation, and regulation of foreign exchanges.

　　China’s Regulation for Direct Overseas Listing: A Critical Assessment

　　In recent years, international capital market has witnessed significant changes, and the competition among stock exchanges in attracting listing resources is getting tough. Meanwhile, the infrastructure of PRC’s domestic stock market is increasing perfect, such as the considerable revisions made for the PRC Company Law （1993） and the PRC Securities Law （1998） and the promulgation of the executive rules and regulations etc, which greatly improved the competitiveness and attraction of domestic stock market. Additional, with the constant expansion of foreign exchange reserves, Chinese government gradually changes its attitude to absorb foreign funds, and attaches more and more importance to the substance and quality of foreign capital. In such cases the regulatory policy of overseas listing seems to be visibly changing, which means the government supports and encourages the direct overseas listing, and restraints the indirect overseas listing. However, the regulatory framework and regimes for the direct overseas listing have demonstrated many defects and inadequacies, and need to be coordinated and improved.

　　In the first place, the regulatory framework is not reasonably devised and developed. （i） The scope of domestic regulatory power is unclear. Theoretically, cross-border listed companies are regulated at two distinct levels: on the one hand, they are subject to their jurisdiction of incorporation and, on the other hand, to the jurisdiction where their securities trade.[20] As such, the issuance and listing abroad of H shares by Chinese enterprises and the follow-up issues such as the continuous disclosure obligation shall mainly be subject to the regulatory provisions of the target market and shall be regulated by the competent authorities of that market. Furthermore, taking into account the representations stipulated by Article 238 of the PRC Securities Law （2005 Revision）， the CSRC is only mandated to approve applications for overseas listing, but is not authorized to supervise H-share companies on an ongoing basis. In contrast, the Several Opinions on Information Disclosure stipulates that the CSRC is empowered to supervise the continuous information disclosure of H-share companies to a certain extent.[21] In fact, the Several Opinions on Information Disclosure has never been effectively implemented, due to the fact that the provisions are impracticable and there is lack of regulatory sanctions with respect to violations. （ii） Regulatory requirements with the same functions are fragmented in the regulatory framework, making them difficult to understand and apply. For example, the core regulatory requirements for direct listing on the main boards and the GEMs of overseas stock exchanges are embodied in two separate regulatory documents, i.e. the Notice on Listing on Overseas Main Boards and the Guidelines on Listing on the HKGEM. Furthermore, they do not exist at the same level in the regulatory framework.[22] （iii） Some regulatory documents appear to be redundant. For example, the Notice on 1995 Annual General Meeting has been implemented completely by related H-share companies in 1995, and the issues regulated by the Report on Overseas Issuance and Listing have been clarified by the Special Provisions, the Notice on Listing on Overseas Main Boards and the Guidelines on Listing on the HKGEM. It is regrettable that the 1995 Annual General Meeting and the Report on Overseas Issuance and Listing have not been explicitly repelled.

　　Secondly, the overseas listing conditions are overly strict and rigid, and the listing of original shares held by sponsors goes through unnecessary limitation. （i） According to the Notice on Listing on Overseas Main Boards, the domestic enterprise applying for being directly listed on main board on overseas stock exchanges shall meet certain requirements in some aspects such as financial conditions, operating results and estimated financing amount, namely, the net assets are not less than CNY 400 million, the profit after tax within the past fiscal year is not less than CNY 60 million, and the financing amount calculated in terms of reasonable and expected P/E ratio is not less than USD 50 million.[23] Such conditions are not only stricter than those for the A-share IPO and listing in domestic market, but also higher than those stipulated by some overseas stock exchanges such as the HKEX in which H-share companies are relatively intensive.[24] （ii） The Notice on Listing on Overseas Main Boards makes the requirements for the minimal financing amount to H-share IPO, this means that the direct overseas listing can only be carried out in the manner of H-share IPO, it is not allowed to do it under the circumstance of not financing in the manners such as back door listing, stock conversion listing etc. Although the Guidelines on Listing on Overseas GEM does not define the minimal financing amount, the associated regulatory practice is same as that for the main boards. （iii） According to the current regulatory policies, the shares held by the sponsors of H-share companies are classfied as domestic capital shares, which is allowed to be circulated in domestic market through agreement transfer, but not allowed to be listed and traded in the overseas stock exchange. The unconvertibality of domestic capital shares to H shares is one of the main causes of that a lot of Chinese enterprises choose to be indirectly overseas listed.