The surge in IPOs by Chinese companies abroad is a thorn in the side of Beijing. There are concerns that foreign authorities – for example in the USA – could access their collected data.
China’s government has announced significantly tighter controls on Chinese companies that are publicly traded abroad. The new regulations are likely to make it more difficult for aspiring companies from China to raise capital on foreign stock markets such as New York or Hong Kong.
The new rules are particularly aimed at “data security, cross-border data flow and the management of confidential information,” as a document from the State Council in Beijing emerged on Wednesday. Future IPOs should also have to be specially approved.
The background to this is the government’s concern that Chinese companies traded abroad could be forced by the local authorities to make their growing amounts of data available. China’s securities regulator also wants to close previous regulatory loopholes that Chinese tech giants have used to enter the US or Hong Kong stock exchanges via investment companies in tax havens such as the Cayman Islands or the British Virgin Islands, according to the Bloomberg financial agency. In the future, a permit will have to be applied for.
Since the expected record IPO of the financial arm Ant Group of the world’s largest online trading platform Alibaba burst at the last minute six months ago, China’s authorities have tightened the reins for other tech companies and platforms as well. On the one hand, the online corporations seem to have become too powerful for them, on the other hand, connections abroad are viewed with suspicion. The domestic star market was also opened in Shanghai as a technology exchange in order to compete with the New York Nasdaq exchange.
Concern about what is happening to the growing amounts of data from Chinese technology companies abroad was also expressed by the spokesman for the Beijing Foreign Ministry, Wang Wenbin, who denounced the USA as the “greatest threat to global cybersecurity”. He criticized the surveillance of the USA “at home and abroad” and accused them of data theft and invasion of privacy. “It is the US that has forced companies to install back doors and obtained user data.”
The new rules for companies traded abroad are intended to regulate confidentiality and responsibility for the security of information, according to the announcement by the State Council. Supervision is being tightened “to deal with risks and emergencies”. The system of how China’s capital market laws are applied and pursued abroad also needs to be improved. Furthermore, the regulations for the admission of IPOs abroad are to be revised, according to the extensive document of the government.
The announcement follows the surprising action taken by the authorities against the leading Chinese driver service agent Didi Chuxing. The Uber rival, which also operates in 16 other countries such as Australia, Brazil, Mexico and Russia, went public in New York last week, despite press reports that cyber oversight had suggested it should be postponed. Shortly after the IPO, the Chinese authorities started investigations into violations of the handling of the collected data, whereupon Didi’s share price plummeted. Similar investigations have also been started against three other recently listed companies in the United States.
The number of companies listed in the US – regardless of the political tensions between Washington and Beijing – has risen by 14 percent in the past seven months, reported the Hong Kong newspaper “South China Morning Post”. In the first half of the year, China accounted for a third of all proceeds from IPOs worldwide – more than any other country. Around 250 companies are listed in the USA.
Jane Stock is a technology author, who has written for 24 Hours World. She writes about the latest in technology news and trends, and is always on the lookout for new and innovative ways to improve his audience’s experience.
