A major shift in China’s artificial intelligence sector is unfolding as Shanghai-based AI startup StepFun moves to unwind its offshore corporate structure in preparation for a planned Hong Kong initial public offering, according to people familiar with the matter.
The adjustment comes as Beijing intensifies scrutiny of so-called “red-chip” companies—firms incorporated overseas, often in jurisdictions such as the Cayman Islands, but with core operations and assets based in mainland China. The China Securities Regulatory Commission (CSRC) recently signalled stricter oversight of these structures, directing some companies to reconsider or dismantle offshore arrangements as part of a broader effort to regulate overseas fundraising channels.
StepFun’s decision reflects a growing compliance push within China’s fast-expanding technology sector, where regulators are seeking greater control over capital flows while still encouraging high-quality listings in markets such as Hong Kong.
Sources said the company, which develops large language foundation models and has emerged as one of China’s prominent AI startups, believes an onshore corporate structure is more suitable given its strong backing from state-linked investors. The firm’s original setup reportedly involved entities registered in the Cayman Islands, a common feature among Chinese tech companies targeting overseas listings.
StepFun’s investor base includes government-backed investment vehicles from Shanghai at both municipal and district levels, alongside major private sector players such as Tencent Holdings and venture capital firm Qiming Venture Partners. The company was founded in April 2023 by former Microsoft executive Jiang Daxin and has quickly gained recognition for its development of advanced AI foundation models.
Regulatory tightening has introduced new uncertainty for offshore-listed Chinese firms, with legal and financial experts warning that restructuring efforts could delay IPO timelines or, in some cases, make listings economically unviable due to high compliance costs and complex corporate overhauls.
Despite these challenges, Hong Kong’s equity market continues to attract strong interest from Chinese issuers. Following a sharp rebound in 2025—when IPO fundraising surged more than 200% to tens of billions of dollars—hundreds of companies have already submitted listing applications. Technology and AI firms account for a significant share of this pipeline, reflecting sustained investor appetite for high-growth sectors.
StepFun itself has reportedly been preparing for a substantial fundraising and listing push. Earlier reports from Chinese financial media indicated that the company was targeting multi-billion-yuan pre-IPO funding at a valuation of up to $6 billion, with plans to file for a Hong Kong listing later this year at an even higher valuation.
The company’s AI products have already gained traction in the competitive Chinese market. Its Step 3.5 Flash model ranks among the most widely used systems on major AI platforms, alongside offerings from rivals such as MiniMax and Kimi. StepFun has also expanded into commercial applications through partnerships with companies like OPPO and Geely, integrating its models into consumer electronics and automotive systems.
In a sign of its ambition to strengthen leadership ahead of a potential listing, StepFun recently appointed Yin Qi, founder of facial recognition firm Megvii Technology, as president.
The restructuring trend is not limited to StepFun. Other Chinese AI players are also reassessing offshore structures. Among them, Moonshot AI—developer of the widely used Kimi language model—is reportedly evaluating whether to dismantle its Cayman Islands-based structure as it considers a potential Hong Kong IPO. The company is currently pursuing fresh funding that could value it at up to $18 billion.
Analysts say the broader shift highlights a delicate balancing act for China’s technology champions: complying with tighter domestic regulatory expectations while maintaining access to global capital markets. As more firms weigh their options, the future of the “red-chip” model appears increasingly uncertain, even as investor demand for Chinese AI listings remains strong.