Since the infamous collapse of the Didi IPO, Chinese regulators have cracked down on companies housing significant amounts of sensitive consumer data. However, they have ramped up their efforts even further, in a move that will prevent the country’s tech firms from listing abroad.
According to the Wall Street Journal which cited people familiar with the matter, China’s Securities Regulatory Commission is planning to create a new set of rules to vet IPOs looking to list abroad, particularly companies with large amounts of user data. If implemented, the rules would likely prohibit tech companies seeking foreign listings, while firms with less sensitive data, such as pharmaceutical companies, would still receive regulatory approval.
Although the proposal has yet to be finalized, the CSRC plans to apply the new rules sometime in the fourth quarter. In the meantime, companies looking to make their foreign exchange debut have been asked to hold off on their plans until then. The people familiar with the matter revealed that the proposed rules would also allow Beijing to create a new criteria for approving or denying overseas listings.
The new rules will grant Chinese regulators even more power over the complicated corporate system used by Chinese tech companies to bypass stringent conditions on overseas investment. Since the Chinese government prevents foreign ownership of Chinese companies, many firms have relied on variable interest entities (VIEs) to secure foreign capital.
However, the dynamics of Beijing’s latest decision appears to be a hasty quid pro quo measure, because in the meantime, US regulators have implemented new disclosure requirements for Chinese companies looking to list on US exchanges, specifically imposing stricter auditing standards regarding the use of VIEs.
Information for this briefing was found via the WSJ. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.