After Meta's $2 billion acquisition of AI agent startup Manus was blocked by China's National Development and Reform Commission (NDRC), the country's securities regulator has tightened approval for Hong Kong IPOs by companies using the so-called red-chip structure — where a Chinese company holds its domestic assets through an offshore entity registered in the Cayman Islands or similar jurisdictions. Several Chinese AI firms that were considering Hong Kong listings are now scrambling to dismantle their offshore shells and restructure as domestic entities.
Moonshot AI (developer of the Kimi model series) is in discussions with lawyers about restructuring but hasn't made a final decision yet. The company is close to closing a funding round at a $18 billion valuation. Stepfun, another AI startup, proactively began unwinding its offshore holding structure earlier this year, betting that becoming a domestic entity would shave months off its Hong Kong IPO approval timeline. Stepfun's investors — including the Shanghai municipal government — are on board with the reorganization. Autonomous driving company DeepRoute.ai is also exploring similar moves.
Undoing a red-chip structure is a legal nightmare that typically takes six to twelve months. The company must buy back all investor shares from the offshore holding entity, set up a Sino-foreign joint venture in China, and then resell shares to the original investors through the new venture. Investors are required to pay capital gains tax under Chinese regulations. If some investors opt out due to concerns like foreign exchange controls, the company has to find replacement capital. And when the company finally goes public, the lock-up period for existing investors stretches from six months (under a red-chip structure) to twelve months.
There's no blanket ban on red-chip structures yet, but the China Securities Regulatory Commission has already sent inquiries to Moonshot AI and others about their offshore holdings. Several lawyers are advising clients to hold tight and wait for clear regulatory requirements before making any moves. For now, the vast majority of China's tech giants — Alibaba, ByteDance, Tencent, Baidu — remain incorporated in the Cayman Islands.