China seeks to tighten cyber scrutiny for companies in Hong Kong IPOs
The Cyberspace Administration of China released draft rules on Sunday that would require firms to undergo a cyber security review before going public in Hong Kong if it implicates national security, threatening a recent shift as internet companies seek to list in the territory.
The powerful data watchdog launched a probe into Didi Chuxing for suspected data violations two days after its blockbuster $4.4bn IPO on the New York Stock Exchange in June, forcing the once-dominant ride-hailing company to stop registering new users during the investigation.
After the move, the CAC said in July it would tighten rules for companies seeking to sell shares overseas, proposing rules that require companies with personal data of more than 1m users to undergo a security review. However, the guidelines did not clarify whether the requirement applied to Hong Kong listings.
The rules mark the first time Beijing has said that some listings in the territory will have to undergo cyber security reviews but stopped short of specifying the preconditions for this added layer of scrutiny.
Global investment banks raced over the summer to redirect Chinese groups’ IPO towards Hong Kong, seen as a more politically acceptable location to Beijing for tech companies seeking access to international financial markets.
Ximalaya, a popular Chinese podcast and audio platform, filed for an IPO in Hong Kong in September after ditching plans to list in New York. The Financial Times also reported that ByteDance, owner of the short-video app TikTok, has revived plans to go public in Hong Kong by early next year.
The move comes after the introduction of a sweeping new data protection regime that gives the CAC greater power to survey how Chinese companies handle consumer data.
The draft rules, on which public opinion is being sought until December 13, also require companies with large amounts of data touching on China’s national security, economy and public interest to undergo a cyber security review when pursuing a merger and acquisition or a restructuring.
Internet companies seeking to establish overseas headquarters, operational centres or research and development facilities must also report to the Chinese regulators in advance, the CAC wrote.
The draft rules came the day before the opening of the Beijing stock exchange on Monday, a newly minted market that will raise funds for innovation-driven start-ups as China tries to encourage companies to use local exchanges.
The Beijing exchange forms part of the government’s broader push to create homegrown high-innovation tech companies to foster less dependence on outside innovation.