Chinese technology enterprises in the “one neck and two eyes” position to regulate IPO
If officially adopted by Washington and Beijing, Chinese technology enterprises will simultaneously face a series of new regulations on initial public offerings (IPOs).
|China has vowed to step up oversight of businesses that list overseas, after ride-hailing platform Didi raised $4.4 billion from an IPO in the US at the end of June 2021. Photo: Reuters|
According to the Wall Street Journal, China is considering new regulations to restrict Chinese internet companies from listing in the US. Specifically, the Chinese authorities are targeting technology companies with data related to users, while entities holding less data such as pharmaceutical companies can be “immune” to the virus. ban on initial public offerings (IPOs) in the United States.
Alibaba shares fell nearly 3% in last week’s trading day, and Since the beginning of this month, this stock has “evaporates” a total of 15%. The Invesco Golden Dragon China ETF, an index that tracks Chinese shares listed in the US, including US certificates of deposit (ADR) of companies headquartered and incorporated in mainland China, has been slipped 26% this quarter due to increased regulatory pressure.
New regulations on IPOs have yet to be finalized, and Beijing is expected to apply them around the fourth quarter of 2021, the Wall Street Journal reported.
Last week, a senior official from China’s Cybersecurity Administration said that Chinese companies wishing to list shares publicly, including those with plans to list overseas, must meet the following criteria: two main requirements, including: compliance with national legislation; ensure the security of national networks, critical information infrastructure, and personal data.
The key data-holding industries identified by the Cybersecurity Administration of China include: public information and communication services, energy, transportation, water works, finance, and services public service.
Beijing is strengthening corporate governance in many areas, from technology to education and the game industry; while tightening restrictions on cross-border and secure data flows. In particular, the Chinese government has made a number of moves to “squeeze” the most powerful technology companies in the country, including Didi, Alibaba, and Tencent.
At the same time, the US Securities and Exchange Commission (SEC) has also increased scrutiny of Chinese companies seeking IPO opportunities in this market. Accordingly, the US Securities and Exchange Commission requires Chinese companies seeking an IPO to disclose more information about their company structure and any risks of future actions from the Chinese government.
“Variable interest entities” is a common structure adopted by large Chinese companies, from Alibaba to JD.com when listing in the US, while these companies remain subject to scrutiny. of China because it does not allow direct foreign ownership in most cases.
The application of the above corporate structure allows enterprises based in China to set up “shell companies” overseas and issue shares to public shareholders. .