The Xi Jinping government in China has announced introducing a sweeping overhaul to how the nation’s companies can raise capital onshore and overseas. The cabinet has said that it would impose stricter data security and other standards on companies that want to join foreign stock exchanges.
The procedure for overseas listings, including IPOs in such markets as the New York Stock Exchange and the Nasdaq, will be revised. The announcement, at a time when Beijing is tightening control over technology industries, is a potential hurdle for Chinese entrepreneurs who have raised billions of dollars abroad.
It comes after ride-hailing service Didi was ordered to stop signing up new users and remove its app from online stores while it increases security for customer information. An investigation found serious violations in how Didi collected and used personal information, the Cyberspace Administration of China announced. The agency said Didi was barred from accepting new customers until the investigation was completed. A statement said the company was told to rectify problems but gave no details.
The ride-hailing app, which raised over $4 billion in its IPO last week, was eroded by about $22 billion in market value after the Chinese regulator ordered removal of the app from app stores following a probe.
Why is Chinese govt concerned?
The ruling party began tightening control over China's fast-changing internet industries last year, launching anti-monopoly and other investigations. Chinese leaders are concerned about the influence of e-commerce, social media and other companies that pervade the lives of China's public. Most are privately operated.
In April, Alibaba Group, the world's biggest e-commerce platform, was fined $2.8 billion on charges of violating anti-monopoly rules. Other companies have been penalised on charges they violated rules on privacy, censorship and disclosure of acquisitions.
The government is concerned about the international exposure of data collected from China. Dozens of social media and e-commerce companies have been told to handle customer information more carefully as the Communist Party tightens control over their influential industries. Some have been told to collect less information.
Worried investors, companies
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However, the move could adversely affect the steady flow of other stock offers by Chinese technology and biotech companies in New York and Hong Kong. The government's tightening of norms comes as a sort of double whammy for the tech community of China. China has traditionally shut its doors to foreign tech companies. As a result, while the likes of Google and Facebook were barred from the Chinese market, the government nurtured local companies and entrepreneurs in the country. That is what led to the rise of Chinese tech conglomerates including Tencent and Alibaba.
Now, the Chinese government seems to be sending out signals that it will check and crack down on tech companies and entrepreneurs who grow beyond a certain threshold. This might not prove to be a conducive environment for growth of tech and business on Chinese soil.
It is no exaggeration to state that Chinese and US economies are intertwined. The problems are further compounded amid rising trade hostilities between the two powers.
