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Chinese Companies Not Immune From Government Intervention
The Chinese government announced sweeping new rules governing the overseas listings of Chinese companies, in a move that could stifle the path for many Chinese companies to go public outside the mainland. The government wants to improve laws on “data security, cross-border data flow and confidential information management,” key themes in China’s concerns of data sovereignty. The new guidelines – part of a broader statement that covered domestic listings, too – come on the heels of Beijing’s crackdown on ride-hailing giant Didi Chuxing, just days after Didi went public in New York last week, China’s internet regulator on Sunday ordered Didi’s app to be removed from app stores, citing the company’s “serious violations” of laws regarding the collection and usage of personal information. The new rules could have a significant impact on future IPO plans. Many Chinese tech startups raise money from foreign investors who are banking on overseas listings to harvest their gains. China’s could be amending its rules on overseas listings so that companies which use variable interest entities – the legal structure used by companies such as Tencent, Alibaba, Didi Global and Pinduoduo to bypass restrictions on foreign investment – will need to seek approval before selling shares abroad, limiting Chinese companies from seeking capital thru Wall Street and Silicon Valley as they prepare for an initial public offering in New York or Hong Kong, the primary destinations for many of China’s biggest companies. Firms such as Tok-tok’s owner ByteDance would face additional challenges should the proposed changes become enacted. VIEs – offshore shell companies that have a contractual arrangement with the real business – have underpinned foreign investment into China for more than two decades even though they exist in a legal gray zone. The discussion happens in the wake of Didi Global’s initial public offering in New York, which has been hammered after regulators pulled the Chinese ride hailing app from app stores citing violations of cybersecurity laws.
The Chinese government announced sweeping new rules governing the overseas listings of Chinese companies, in a move that could stifle the path for many Chinese companies to go public outside the mainland. The government wants to improve laws on “data security, cross-border data flow and confidential information management,” key themes in China’s concerns of data sovereignty. The new guidelines – part of a broader statement that covered domestic listings, too – come on the heels of Beijing’s crackdown on ride-hailing giant Didi Chuxing, just days after Didi went public in New York last week, China’s internet regulator on Sunday ordered Didi’s app to be removed from app stores, citing the company’s “serious violations” of laws regarding the collection and usage of personal information. The new rules could have a significant impact on future IPO plans. Many Chinese tech startups raise money from foreign investors who are banking on overseas listings to harvest their gains. China’s could be amending its rules on overseas listings so that companies which use variable interest entities – the legal structure used by companies such as Tencent, Alibaba, Didi Global and Pinduoduo to bypass restrictions on foreign investment – will need to seek approval before selling shares abroad, limiting Chinese companies from seeking capital thru Wall Street and Silicon Valley as they prepare for an initial public offering in New York or Hong Kong, the primary destinations for many of China’s biggest companies. Firms such as Tok-tok’s owner ByteDance would face additional challenges should the proposed changes become enacted. VIEs – offshore shell companies that have a contractual arrangement with the real business – have underpinned foreign investment into China for more than two decades even though they exist in a legal gray zone. The discussion happens in the wake of Didi Global’s initial public offering in New York, which has been hammered after regulators pulled the Chinese ride hailing app from app stores citing violations of cybersecurity laws.
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Barry Young
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