CHINA’S SECURITIES REGULATORS indicated last month that stricter supervision of all firms listed offshore was coming. Reports now say this sweeping intent is being narrowed to a ban on foreign listings by platform technology companies whose data poses potential security risks. Any proposed foreign listing would have to pass Cybersecurity Administration of China review.
In recent months, Beijing has tightened its grip on the platform companies. Particular attention is being paid to unfair competition and the companies’ handling of the enormous troves of consumer data they collect. Foreign initial public offerings have been part of that, but have become more politically sensitive after Didi Global, parent of ride-hailing app Didi Chuxing, ignored the authorities’ request to pull its share offering in New York.
The new rules to limit foreign listings are also reported to include a tightening up on variable interest entities (VIEs), a legally ambiguous corporate governance structure used by technology companies to raise capital overseas as it gets around Beijing’s restrictions on foreign investment in sensitive industries such as media and telecommunications. The changes could include greater shareholding disclosure and bringing VIEs, generally incorporated in tax havens, under direct legal jurisdiction.
One intent behind the change may be to drive tech companies back to domestic markets on the mainland or Hong Kong for their listings. After the halting of Ant Group‘s $37 billion share flotation last year and subsequent regulatory tightening over domestic new listings, scores of tech companies seeking outside capital dropped plans to list on Shanghai’s STAR Market and Shenzhen’s ChiNext market and rushed to list overseas, particularly in New York.
More broadly, the new rules, if they come to pass as advertised, will be in line with Beijing’s national security concerns, imagined or not, that foreign ownership could result in the disclosure or compromise of mass Chinese user data.
They will also align with the leadership’s growing intent to ensure that business supports China’s national interests as the Party defines them. Keeping the wealth created by the country’s burgeoning technology sector at home to fund more indigenous development in the sector is one of them.