The past few months have been difficult for Chinese firms to seek an overseas listing. In the wake of China’s newly required pre-IPO security reviews for those holding data of 1 million users, the widely adopted offshore financing and listing structures for Chinese companies incorporated overseas, also known as “the red-chip model”, are also under heavy scrutiny by the regulators of both the US and China.

But what if we can revamp and reboot the red-chip model in Hong Kong? By taking advantage of Hong Kong as an international financing center and the likely trend of Chinese companies delisting from the US exchanges, we might be able to strengthen Hong Kong’s global financial competitiveness and build a more innovative economy in the city.

A commonly adopted red-chip model works like this: A Chinese business sets up an offshore holding company in a tax haven like the Cayman Islands for listing outside of the Chinese mainland with its domestic business controlled via various contracts. This is often referred to as a variable interest entity structure, or VIE. This makes it easier for the company to get listed outside of the mainland and appeal to foreign investors while benefiting from low taxes.

No other places seem more suitable than Hong Kong to develop a new red-chip model that could meet the Chinese mainland’s new regulations and bring in sufficient international capital to support innovative companies

The VIE structure has proved successful in the past two decades in helping numerous Chinese firms obtain foreign capital for business expansion, but it also falls under a regulatory gray zone and raises concerns over capital flight and tax evasion.

To address regulators’ concerns and seize the business opportunities from the US delisting trend, I have proposed a new red-chip model for adoption in Hong Kong with a refined corporate structure that goes beyond a listing vehicle. By setting up an “offshore” platform company in northern parts of Hong Kong — envisioned as an international innovation and technology center by the Hong Kong SAR government — a mainland tech company can attract foreign capital, technology and talent.

As is the case under the VIE structure, the main business operations of these mainland tech companies don’t necessarily need to be in Hong Kong. Nonetheless, they will be able to avail of a full range of financial services from incubation to IPO and enjoy the city’s supportive policies for tech companies. Also bear in mind: Tax benefits in the Cayman Islands may be less appealing to entice companies when a global minimum corporate tax of 15 percent — backed by the Group of 20 leaders — is expected to be in place in 2023.

The envisioned “offshore” platform will also set apart from traditional ones set up by mainland firms in Hong Kong, such as corporate treasury centers to manage intragroup capital or “window companies”, which often act as a liaison office between local governments and provincial firms that have business in the city. Unlike these traditional platforms, a mainland tech firm adopting the new red-chip model looks more attractive to international venture capital firms as investors can exit via trade or IPOs.

This new model will also support Hong Kong’s own industry-upgrading plans. The latest policy address from Chief Executive Carrie Lam Cheng Yuet-ngor outlines an industrial ecosystem that combines finance and technology for the city to thrive in a sustainable way.

To make such an ecosystem work, we need to attract capital, enterprises and talent. The new red-chip model could help establish a cluster of innovative brainpower by bringing in an increasing number of mainland startups here and a plethora of middle and large tech and internet firms that might consider delisting from the US exchanges in the midst of a tense US-China relationship.

To be sure, for such a model to function in reality, there are still many regulatory hurdles that will require discussions and close collaboration between authorities in Hong Kong and the mainland. Ideally, the mainland authorities could set up a fast lane for companies to get approval for establishing “offshore” platforms in the city. The Hong Kong SAR government should also roll out more tax incentives to increase this new model’s global competitiveness. Moreover, corporate data from new red-chip firms should be securely protected in the city to comply with the latest regulatory requirements.

Because of its unique “one country, two systems” mechanism, no other places seem more suitable than Hong Kong to develop a new red-chip model that could meet the Chinese mainland’s new regulations and bring in sufficient international capital to support innovative companies.

The author is the CEO of Huatai Financial Holdings (HK) Ltd, the flagship of Huatai Securities’ overseas business. He is an international financial expert in theoretical studies of economics, and teaches postgraduates at Central University of Finance and Economics in Beijing.

The views do not necessarily reflect those of China Daily.