Chinese Regulators Cracking Down on Internet Companies Seeking US IPOs

Kimberly Redmond  |

Video source: YouTube, CNBC International

China is weighing new rules that would restrict domestic internet companies from going public in the US.

Citing sources familiar with the matter, The Wall Street Journal reported on Friday that Chinese regulators are specifically targeting internet firms that host a variety of sensitive customer data. 

Under the new regulations, China would require companies to obtain formal approval for overseas IPOs from a “cross-ministry committee.”

The rules would also emphasize the legal responsibility of underwriters in overseas listings and require more disclosure of shareholdings for those with a variable interest entity (VIE) structure.   

Currently, Chinese companies under the VIE structure, the most common way companies have listed in the US, are not required to seek approval from regulators.

Beijing reportedly plans to roll out the new rules in the fourth quarter.

The move is part of China’s ever-expanding regulatory crackdown on industries like technology, education and gaming, with particular focus on tightening restrictions on cross-border data flows and security.

In recent months, the government has gone after some of the country’s most powerful tech companies, including Alibaba Group Holding, Tencent Holdings and Didi Global Inc.

Chinese tech firms have raised billions of dollars via foreign listings, particularly in the US. As the sector has grown in size and prominence, however, Beijing has become more wary of its influence and the volume of data it controls, Reuters noted. 

Stocks have taken a tumble under the harsher scrutiny, with more than $1 trillion in market value being erased in mere months.

Meanwhile, the US Securities and Exchange Commission has also stepped up its oversight of Chinese companies seeking US IPOs. Last week, the agency said it will require additional disclosures about the VIE structure, as well as any risk of interference from the Chinese government.

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Source: Equities News

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