By Dhirendra Tripathi

Investing.com – ADRs and shares of Chinese companies traded lower in premarket Monday in a spillover effect of the world’s second largest economy is bringing to curb new offshore listings in sectors restricted from foreign investment.

ADRs for Didi Global (NYSE 🙂 Alibaba (NYSE:) fell 2.5% and 0.5% respectively. Both Pinduoduo (NASDAQ:) And Xpeng, (NYSE:), fell 0.3%. Baidu (NASDAQ 🙂 dropped 1% With gains close to 1%, Nio ADRs was able to buck the trend. Financial Times reportedDidi Global also extended their lockup date indefinitely to prevent employees selling shares.

The move by the Chinese authorities is intended to plug a loophole long used by the country’s internet industry to raise capital overseas. According to Reuters which quoted a statement from the Ministry of Commerce and National Development and Reform Commission, the list of prohibited sectors now exists. Chinese businesses operating in such areas must apply to get a waiver prior to selling shares.

Overseas investors in such companies would be forbidden from participating in management and their total ownership would be capped at 30%, with a single investor’s holding restricted to 10%, according to the list that becomes effective January 1.

Although regulators didn’t ban IPOs of companies with the Variable Interest Entities (VIE) structure, new rules make this process harder and more expensive. VIE is a way for a Chinese business to make a profit and transfer it to an offshore entity (registered in Cayman Island) with shares that can be owned by foreign investors.

Chinese regulators are concerned by the large amount of information on Chinese consumers that their companies have listed. They must share this data with U.S. authorities in order to follow the law.