China to impose security checks on overseas listings
Chinese companies that have the data of more than 1m users will need to pass a security review before issuing shares on overseas stock exchanges, the country’s internet regulator said on Saturday.
The announcement from the Cyberspace Administration of China came less than a week after the State Council, China’s cabinet, and the Chinese Communist party’s Central Committee said a new regulatory regime was needed to police overseas listings, which had previously escaped strict government oversight.
President Xi Jinping’s administration is most concerned about listings in the US, where more than 30 Chinese firms raised a record $12.4bn in the first half of this year, according to data from Dealogic.
The CAC’s edict confirmed its status as a powerful entity under the emerging regulatory regime for Chinese overseas listings. The regulator will inform IPO applicants if they have passed its data security review within 60 business days, but the process may take twice as long if there are disagreements.
On July 2, China’s internet regulator told Didi Chuxing, China’s largest ride-hailing group, to stop signing up new users on data security grounds, just days after it had completed a $4.4bn IPO on the New York Stock Exchange.
The CAC had wanted Didi to at least delay its US IPO, but had no legal powers to force it to do so. The regulator was concerned the group’s data, including the locations of sensitive government buildings and installations, could be obtained by foreign regulators.
The US has passed legislation compelling foreign companies to comply with domestic audits within three years or face forced delisting, but Beijing has ordered Chinese groups to not do so. US politicians have pointed to the Didi saga as justification for tighter oversight of Chinese companies listed in New York.
Didi’s shares fell more than 20 per cent on Tuesday, their first day of trading after the CAC’s intervention.
The CAC also banned downloads of the car hailing group’s main app last Sunday. On Friday night, it extended the ban to 25 more Didi-related apps.
In another sign of the increased clampdown by China’s technology giants, the country’s market regulator also vetoed a Tencent-proposed merger on Saturday that would have created a dominant video game streaming operator.
The State Administration of Market Regulation said the merger of two US-listed Tencent units, DouYu and Huya, would have created an entity controlling more than 70 per cent of the market.
Tencent, which also operates the popular WeChat messaging app and one of China’s largest online payment services, proposed the merger in October, just weeks before Xi’s administration blocked a $37bn initial public offering by Jack Ma’s internet finance platform, Ant Group, which would have been the largest ever. DouYu and Huya have a combined market value of $5.3bn.
The blocking of Ant’s IPO was the first salvo in a wide-ranging crackdown that has ensnared tech giants including Ma’s ecommerce flagship, Alibaba, Tencent and Didi.
Tencent, Didi’s third-largest shareholder with a 6.8 per cent stake, said it had accepted the regulators’ decision on the DouYu-Huya merger and would “fulfil our social responsibilities”. Tencent had previously been fined for not seeking regulatory approval of some acquisitions.
Scott Yu, an antitrust expert at Zhong Lun Law in Beijing, said it was the first time the market regulator had blocked a domestic merger. “It will make other companies more cautious in assessing antitrust prospects,” he said.
Tencent’s business is surging despite the crackdown. For the first quarter it reported a better than expected 25 per cent year-on-year increase in revenues, to Rmb135bn ($20.8bn).