Reason given was because “risk to data and personal information” could be “affected, controlled and maliciously exploited by foreign governments”, the Cyberspace Administration of China said on July 10.
China’s toughened stance comes after Didi pushed ahead with its IPO in June despite being asked to defer its plans in April.
China has proposed a law making it mandatory for companies to conduct a cybersecurity review if they want to list in foreign countries. The move will “significantly” increase scrutiny over Chinese internet giants, Bloomberg reported.
The law would require companies with over 1 million users to apply for cybersecurity approval before going for IPOs in other countries. The process will include review of potential security risks from overseas listings, the Cyberspace Administration of China said on July 10.
Reason given was because “risk to data and personal information” could be “affected, controlled and maliciously exploited by foreign governments”, the statement added.
This is among the “most concrete steps” taken by China to restrict technology firms’ ability to raise capital from the US through Variable Interest Entity (VIE) model like Alibaba, Baidu and Didi Global did, the report noted.
Sources also told Bloomberg that Chinese regulators are contemplating making companies that previously undertook VIE from foreign countries to seek approval for additional share offerings.
Feedback has been sought for the proposed rules.
In 2021, 37 Chinese companies listed in the US and raised a combined $ 12.9 billion, the report said. The numbers are much higher compared to 2020.
The toughened stance comes after Didi pushed ahead with its IPO in June despite being asked to defer its plans in April.
Feng Chucheng, a partner at research firm Plenum in Beijing said the rules will push companies to list in Hong Kong instead and would apply to every internet company aspiring for an IPO as the 1 milliion user cap is “very low”.
Among the tech firms that will be immediately impacted include ByteDance’s TikTok and logistics and delivery firm Lalamove.
