Beijing tightens tech policies for abroad listing

Beijing is planning to further tighten its grip on its tech sectors as its intensified its tech policies and regulations for overseas listing for China rising tech start-ups.

China’s months-long regulatory campaign on its tech titans has left companies craving the sellout of their stakes abroad in order to register with the proposed guidelines by security regulators.

This would allow these regulators to have access to their listing plans, all while heightening cooperation between governmental agencies to guarantee that tech firms are complicit with China’s laws, including data security.

The new structured laws fortify Beijing’s influence in prohibiting companies from listing abroad if the government deems the sale as a national threat. In parallel, it would forbid firms from obtaining international share offerings if authorities discovered they have internal disagreements or any unwanted problems.

China’s Security and Regulatory Commission (SRC) drafted the new measures after months of debate concerning overseas-listed Chinese groups that played a fundamental role in fluctuating their share prices.

This year alone, one main index for Chinese groups fell by 45 percent in the U.S. listing in the New York Stock Exchange (NYSE).

The Chinese government’s scrutiny of its rising tech sector has critically devaluated almost half a dozen educational companies listed in New York. This was followed by one of China’s ride-hailing company Didi was driven to extract its listing from the NYSE in December following unmatched compression from the government.

Ever since the release of the regulatory wave from Beijing, tech companies chose New York and Hong Kong for their listings following an investigation into Didi’s usage of users data this year.

“Overall the tone is milder than we expected so I’m quite relieved,” Ming Liao of Prospect Avenue Capital told the Financial Times.

“With clear rules in place, IPOs can slowly restart,” he added.

By shaping its rules and measures, the SRC demonstrated that Chinese firms perceived as variable interest entities (VIE) are legally allowed to list their shares in a forging listing after registering.

Tencent and Alibaba for instance use the VIE’s legal structure to bypass China’s harsh foreign investment policies and attract international investment that could reach billions of dollars.

These legal structures have long been adopted by Chinese tech entities for that sole reason.

“This policy is meant to support companies using overseas capital markets to raise money in a compliant and law-abiding manner,” the regulator said in a statement.

According to the regulator authority, this policy will “do its best to lighten the burden of regulation.”

These rules will be strictly directed towards Chinese tech companies considering to put its shares in the market for the first time, in addition to those hiring certain special purpose acquisition firms to obtain overseas entry to capital markets or joining offering for a second time.