Starting next month, Chinese companies with large amounts of user data will require approval from regulators before they can list abroad. The system, called the network security review process, was first announced last year. It will be implemented by the Cyberspace Administration of China (CAC) on the 15th of February.
This is being introduced as the country continues to tighten regulations on its technology sector. These attempts to regulate the technology sector have been on for a long time. Apart from the technology sector, regulators have been on the cryptocurrency sector which they have successfully managed to “regulate”.
According to the Cyberspace Administration of China (CAC), internet platforms and tech companies that hold the personal information of at least 1 million users must make an application for a network security review with regulators before they can go on with an initial public offering (IPO) abroad. According to the CAC, the rule is targeted at companies that take on data processing activities that could be detrimental to the country’s security.
Companies can only list abroad if their data processing activities are found to not be of danger to national security. If they are found to be of danger to national security, they cannot list in other countries. The new law follows a set of new regulations delivered by Beijing on the tech sector over the past year as it steps up efforts to regulate tech companies’ anti-competitive behaviour.
The Chinese government has been focusing on data and related activities for some time now and since the US government blacklisted a number of Chinese companies on the basis of threat to national security, the Chinese government has also taken it upon itself to ensure that no tech company, both internal and external is a threat to national security.
In 2021, the Chinese government launched its first major data protection law. In the same year, the government opened its first cybersecurity review after launching a probe into ride-hailing titan Didi, a few days after the company debuted in the US. The company was accused of listing abroad without carrying out a review with regulators first. Following this, the company announced that it would delist from the New York Stock Exchange (NYSE) and list on the Hong Kong Stock Exchange instead.
Following uncertainties, increasing regulation, and the need for business to thrive amid challenges, many Chinese companies are looking at Hong Kong as the next point of call to list.