China State Council steps up scrutiny on overseas listed Chinese companies and data security

6 Jul, 2021 20:05
source: Singularity Financial

Singularity Financial Hong Kong July 6, 2021 – China issued a sweeping warning to its biggest companies, vowing to tighten oversight of data security and overseas listings just days after Didi Global Inc.’s contentious decision to go public in the U.S.

“While the statement from China’s State Council on Tuesday was thin on details, it suggests Beijing is preparing to intensify a crackdown on its corporate sector that has spanned everything from property debt and fintech to antitrust issues and now cybersecurity,” a report states by Bloomberg.

According to the document, rules for overseas listings will be revised, the State Council said, while publicly-traded firms will be held accountable for keeping their data secure. China also said it will step up its regulatory oversight of companies trading in offshore markets.

The move comes after the cyberspace regulator announced a probe into Didi, which controls almost the entire ride-hailing market in China, and pulled the company’s app from stores. The strong response from Beijing, which came just days after the $4.4 billion IPO, prompted Didi’s shares to plunge in U.S. trading on Tuesday.

The Global Times, a China local newspaper, wrote in an editorial that Didi undoubtedly has the most detailed travel information on individuals among large internet firms and appears to have the ability to conduct “big data analysis” of individual behaviors and habits. To protect personal data as well as national security, China must be even stricter in its oversight of Didi’s data security, given that it’s listed in the U.S. and its two largest shareholders are foreign companies, it added.

WashingtonPost wrote in its own report, “on Didi specifically the critical question is what the review regarding user data finds. But analysts are already looking at the likely wider impact. Key issues are whether the action is likely to discourage other Chinese tech firms from embarking on an overseas listing, and whether the action marks a new direction for the regulatory crackdown.”

US has proved an easier path to the public markets for Chinese firms, which raised US$12.5 billion through US listings in the first half of this year. That compared with US$12 billion raised by 30 Chinese companies in all of 2020, according to financial data provider Refinitiv.

But U.S. exchanges are becoming increasingly hostile to Chinese companies, which may face delisting if they refuse to hand over financial information to American regulators.

The move could prompt Chinese technology firms traded in the U.S. to reconsider their listings. Weibo Corp. chairman Charles Chao and a state investor are in talks to take Weibo private, Reuters reported on Tuesday, citing people familiar with the matter. The structure of the deal would allow major shareholder Alibaba Group Holding Ltd. to exit its stake, according to the report. “The speculation is not true,” a representative for Weibo told Bloomberg News, declining to elaborate.

Bloomberg further states, Beijing may also be seeking to close loopholes that allow Chinese firms to list overseas without approval if they are incorporated offshore. Many technology firms including Tencent Holdings Ltd. and Alibaba are registered in places such as the Cayman Islands or the British Virgin Islands.