KEEP, CHINA’S MOST popular fitness app, and medical data group LinkDoc Technology pulled plans for initial public offerings (IPO) on the New York Stock Exchange in advance of last weekend’s crackdown on four other sector-leading app platforms, it has now emerged.
Didi Chuxing (ride-hailing), Huochebang and Yunmanman (commercial vehicles), and Zhipin (recruitment) were all put under investigation by the Cyberspace Administration of China, shortly after launching IPOs in New York, for failing to protect the data privacy of Chinese citizens, as foreign investors would have access to it through their share ownership, thus creating a national security risk.
Didi Chuxing reportedly ignored a warning from authorities to ‘delay’ its $4.4 billion IPO. As Jack Ma’s Ant Group can attest, there are some tigers it is rarely wise to poke in the eye.
In the meantime, authorities are preparing to end the governance structure that allows them to do so, variable interest entities (VIEs). VIEs were created to get around the restriction on foreign ownership of Chinese tech companies that hamper Chinese companies from raising foreign capital but exist in that peculiarly Chinese governance grey area between allowed and forbidden.
The China Securities Regulatory Commission’s (CSRC) is setting up a team that will review any proposed overseas IPO, which will now also require the approval of the relevant ministry. It will be paying particular attention to any Chinese company using a VIE structure.
This will lead to fewer and probably no listings of Chinese companies in New York and more in Hong Kong, where Beijing’s view of sovereignty-based digital governance is more easily enforced.
It appears we have reached a point of asymmetric decoupling of equity markets. In the United States, the Trump administration launched a policy of denying Chinese firms access to US stock exchanges to prevent Chinese access to US technology and capital, leading to the unedifying flip-flop by the New York Stock Exchange over delisting the three leading Chinese telcos. China is now responding by denying US investors access to Chinese data and forcing US capital that wants to invest in Chinese companies to move offshore to Hong Kong.
This would provide the decoupling the previous US administration wanted, and which the current one has shown no signs of reversing, but on China’s terms, which would not have been the original intention.