China's Experiment of Dual-Class Equity Structures: Regulatory Frameworks and Investor Protection

Authors

Sang Yop Kang, Peking UniversityFollow
Terry LingFollow

Abstract

Mainland China traditionally upheld the one-share-one-vote (OSOV) principle. Since 2019, however, Chinese authorities have introduced the dual-class equity structure (DCES) for innovative enterprises. Due to investor-protection concerns, China’s DCES operates on a “stringent approval system,” with only eight corporations listed under DCES as of December 31, 2024. This Article provides a comprehensive policy analysis of the Chinese DCES system, including empirical analyses of the eight existing cases. It explores legal and economic aspects of investor protection within China’s DCES, examining “three sets of investor safeguard measures”: (1) “three numerically specified rules” (e.g., 10% equity rule, 10-time voting-right rule, and 2/3 voting-right rule); (2) sunset provisions (event-driven and time-based); and (3) rules converting special-voting shares into shares with one vote (e.g., conversions in an amendment to the articles of association, the appointment and removal of independent directors, and mergers and control contests). Addressing tunneling concerns, this Article argues for “DCES with enhanced investor protection.” To foster entrepreneurship, the Chinese authorities should gradually relax the stringent approval system for DCES. This relaxation is crucial for China, as escalating tensions with the United States have significantly impacted its DCES-IPO markets. Additionally, the DCES-IPO market in Hong Kong remains inactive, underscoring the need for viable DCES-IPO markets in Mainland China.

First Page

108

Erratum

Typo correction.

Recommended Citation

Sang Yop Kang & Terry Ling, China's Experiment of Dual-Class Equity Structures: Regulatory Frameworks and Investor Protection, 34 Wash. Int’l L.J. 108 (2025).
Available at: https://digitalcommons.law.uw.edu/wilj/vol34/iss2/4