China is planning to introduce new regulations that would ban several Chinese companies that handle sensitive user data from listing abroad, the Wall Street Journal reported on Friday, in a move that could be a severe blow to the ambitions of local internet companies who are planning to launch foreign initial public offerings (IPOs).
According to the WSJ report, the China Securities Regulatory Commission (CSRC) has informed some companies and their foreign investors that local internet giants who hold a large amount of user data will be prohibited from listing abroad.
As part of the rule change, the Chinese regulator will set up a mechanism that will require companies to obtain formal approval before moving ahead with a foreign IPO.
The approval process will be handled by a cross-ministry committee that will be set up in the coming months.
The rules will specifically target companies planning foreign IPOs through units incorporated abroad, the report says.
The report also notes that companies with less sensitive data, such as pharmaceutical companies are still expected to receive a green light for foreign listings.
Reuters reported that the ban will also likely target companies that are seen as having “ideology issues,” without elaborating further.
The WSJ report—which was published less than an hour before markets closed in Hong Kong—hasn’t impacted the stocks of major Chinese internet giants like Baidu, Alibaba and Tencent.
The reported regulatory proposal comes on the backdrop of a concerted effort by the Chinese government to exert more control over the country’s major tech companies. Chinese authorities have targeted and punished several major tech companies in the country for anti-competitive practices and gathering large volumes of private user data. The new rules will allow Beijing to more closely control tech companies that use foreign units to raise capital abroad without explicitly needing Chinese regulatory approval. This loophole, which the new proposals seek to close, allowed Chinese taxi-hailing giant Didi to list on the New York Stock Exchange earlier this year.
What To Watch For
The planned move by the CSRC comes at a time when the U.S. Securities and Exchange Commission (SEC) plans to increase scrutiny of Chinese-owned companies that are listed in the U.S. and those who are planning to launch a U.S. IPO. Last month, SEC Chairman Gary Gensler announced that the agencies will conduct “targeted additional reviews” of IPO filings for companies with significant China-based operations. Earlier this week, Gensler said the SEC will also order the more than 250 Chinese companies trading in U.S. markets to better inform investors about their political and regulatory risks. The SEC’s actions followed the fiasco around Didi’s U.S. IPO. The cab-hailing giant’s shares tanked last month following its IPO after Beijing announced it was scrutinizing the company and it would restrict it from adding any new users.
China Plans to Ban U.S. IPOs for Data-Heavy Tech Firms (Wall Street Journal)