Chinese Depositary Receipts: What They Are, How They Work and Why This Represents a Golden Opportunity

Butterworths Journal of International Banking and Financial Law (2018), Vol. 33 (8), pp. 529-532

4 Pages Posted: 23 Jul 2018 Last revised: 23 Sep 2018

See all articles by Lerong Lu

Lerong Lu

The Dickson Poon School of Law, King's College London

Ningyao Ye

Centre for Business Law and Practice

Date Written: September 1, 2018

Abstract

In this article the authors analyse the reform of listing rules in China and the operating mechanism of the new Chinese Depositary Receipts (CDRs). Most technology giants in mainland China, such as Alibaba, Tencent, Baidu, JD and NetEase have listed their shares on overseas stock markets such as Hong Kong and New York, in order to avoid China’s rigid and onerous listing rules concerning foreign ownership, variable interest entities, weighted voting rights and the strict profitability requirement. Recently, the China Securities Regulatory Commission (CSRC) has launched a pilot project to allow certain foreign-listed Chinese companies to issue CDRs which can be traded in the Shanghai and Shenzhen stock exchanges. Technically speaking, CDRs are not shares but they represent equity interests in foreign companies through an offshore custodian bank. Clearly, the popularisation of CDRs will benefit several parties. Chinese investors will be able to purchase interests in some of the top tech companies in the world. It will also lure international capital to the Chinese market and boost the valuation of issuing companies. The market scale of CDRs is estimated to be over $1 trillion, which will be a source of income for investment banks and international law firms.

Keywords: Chinese Depositary Receipt, CDR, Securities Regulation, Financial Law, Listing Rules, Stock Market, Xiaomi, Alibaba, Tencent, Baidu, Unicorn

Suggested Citation

Lu, Lerong and Ye, Ningyao, Chinese Depositary Receipts: What They Are, How They Work and Why This Represents a Golden Opportunity (September 1, 2018). Butterworths Journal of International Banking and Financial Law (2018), Vol. 33 (8), pp. 529-532. Available at SSRN: https://ssrn.com/abstract=3206220

Lerong Lu (Contact Author)

The Dickson Poon School of Law, King's College London ( email )

Strand
London, WC2R 2LS
United Kingdom

HOME PAGE: http://www.kcl.ac.uk/people/lerong-lu

Ningyao Ye

Centre for Business Law and Practice ( email )

Leeds LS2 9JT
United Kingdom

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