China to order reviews for firms seeking overseas listings

The CAC said it would from Feb. 15 implement new rules that require platform companies with data for more than 1 million users to undergo a security review before listing their shares overseas

China on Tuesday said it would put in force new rules that will strengthen oversight over how its platform companies make plans to list abroad or use algorithms, in moves set to further tighten Beijing’s grip over its sprawling technology sector.

The Cyberspace Administration of China (CAC) said it would from Feb. 15 implement new rules that require platform companies with data for more than 1 million users to undergo a security review before listing their shares overseas.

From March 1, it will also implement rules governing the use of algorithm recommendation technology, it said in a separate statement. Both sets of rules were proposed last year and are expected to potentially impact a large swathe of companies, such as TikTok owner ByteDance, e-commerce giant Alibaba Group, and many smaller players.

The CAC move comes amid a slew of regulatory changes in China over the past year that has dampened the appetite of firms to list overseas but bankers hope the new rules will provide more certainty in 2022. In Hong Kong, the Hang Seng Index dropped 0.36% on Tuesday and the city’s tech index shed 1.44%.

Shares in Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong stock exchange, were last down 1.9%, after having dropped 2.4% following the announcement.

If this is not retrospective then it would only affect listing aspirants and not companies already listed. Having said that, companies in the latter camp already have a lot on their minds, said Justin Tang, head of Asian research at investment adviser United First Partners in Singapore.

The CAC changes come a week after China’s state planner said it would demand regulatory clearance for overseas Chinese listings in sensitive sectors, part of Beijing’s efforts to set up a new framework to scrutinize offshore listings. Separately, the China Securities and Regulatory Commission (CSRC) proposed Dec. 24 tightening rules governing Chinese companies listing abroad by requiring them to submit filings to the agency first, under a system that also involves close coordination among various regulatory bodies.

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