China tightens rules on foreign IPOs in new blow to tech firms

China's proposed rules require nearly all firms seeking to list in foreign countries to undergo a cyber-security review. PHOTO: REUTERS

BEIJING (BlOOMBERG) - China has proposed new rules that would require nearly all companies seeking to list in foreign countries to undergo a cyber-security review, a move that would significantly tighten oversight of its Internet giants.

Companies holding data of more than one million users must now apply for cyber-security approval when seeking listings in other nations because of the risk that such data and personal information could be "affected, controlled, and maliciously exploited by foreign governments", the Cyberspace Administration of China said in a statement on Saturday (July 10).

The cyber-security review will also look into the potential national security risks from overseas initial public offerings (IPOs), it said.

The move announced on Saturday, which confirms a previous report by Bloomberg, is one of the most concrete steps taken yet to restrain the ability of technology firms to raise capital in the United States through a so-called variable interest entity (VIE) model that the likes of Alibaba Group Holding, Baidu and Didi Global have adopted.

Regulators are also considering requiring VIEs like Alibaba that have already gone public to seek approval for additional share offerings in the offshore market, people with knowledge of the matter have said.

The regulator is seeking feedback on the proposed rules, which apply to listings in foreign countries specifically, before implementation. So far this year, 37 Chinese companies have listed in the US, surpassing last year's count, and raised a combined US$12.9 billion (S$17.4 billion), according to data compiled by Bloomberg.

"These rules will push more Chinese Internet firms to list in Hong Kong instead of in another country, to bypass such a review," said Mr Feng Chucheng, a partner at research firm Plenum in Beijing.

"The one-million-user threshold is very low and would basically apply to every Internet company aspiring for an IPO."

The authorities have accelerated a crackdown on overseas listings after Didi was said to have push ahead with its debut in June despite being asked to delay the plans as early as three months ago.

The State Council said on Tuesday that rules for overseas listings will be revised while publicly traded firms will be held accountable for keeping their data secure.

Even before the rules were announced, some companies that had planned to list in New York pulled their IPOs.

On Thursday, Beijing-based LinkDoc Technology became the first company known to have shelved an IPO in the wake of the newly proposed changes. Since then, it has been reported that Chinese fitness app Keep and vegetable start-up Meicai have both scrapped their US listing plans.

The new rules could impact Chinese technology firms such as TikTok owner ByteDance and on-demand logistics and delivery firm Lalamove, which are considering IPOs.

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