EXCLUSIVE China plans to push US companies linked to IPO to cede control of data – sources
HONG KONG, Aug. 20 (Reuters) – Chinese regulators plan to pressure data-rich companies to outsource the management and oversight of their data to third-party companies if they want U.S. stock quotes, said sources, as part of Beijing’s unprecedented scrutiny of companies in the sector.
Regulators believe that bringing in third-party information security companies, ideally backed by the state, to manage and monitor the data of IPO candidates could effectively limit their ability to transfer Chinese data onshore to abroad, one of the people said.
This would help allay growing concerns in Beijing that a foreign listing could force these Chinese companies to pass some of their data to foreign entities and harm national security, the person added.
The plan is one of many proposals being considered by Chinese regulators as Beijing has tightened its grip on the country’s internet platforms in recent months, including seeking to sharpen the scrutiny of overseas listings.
The crackdown, which shattered stocks and rocked investor sentiment, particularly targeted unfair competition and Internet companies’ treatment of a huge cache of consumer data, after years of a more laissez-faire approach. .
A final decision on whether to transfer company data related to the IPO has yet to be made, the sources said, who declined to be identified due to the sensitivity of the matter.
Regulators discussed the plan with capital market players, one of the sources said, as part of measures to strengthen supervision of all Chinese companies listed overseas.
IPO advisers are hopeful that a formal framework on the issue of data transmission can be provided in September, the source said.
The China Securities Regulatory Commission (CSRC) and the Cyberspace Administration of China (CAC) did not respond to faxed requests for comment.
Chinese regulators recently suspended overseas listing plans of companies, particularly in the United States, pending new data security rules.
Last month, the CAC proposed draft rules calling for businesses with more than one million users to take security exams before registering overseas.
The United States Securities and Exchange Commission, which oversees listings in the United States, did not immediately respond to a request for comment.
U.S. policymakers are already concerned that Chinese companies will flout U.S. rules forcing state-owned companies to disclose a range of potential risks to their financial performance, and Beijing’s data transfer plan has prompted further calls for caution.
“This is further proof that private companies do not really exist in the People’s Republic of China – they are all controlled by the Chinese Communist Party,” said US Representative Michael McCaul, the committee’s top Republican. Foreign Affairs of the House of Representatives. said in a statement.
“Any company doing business in the PRC must respond to the CCP, threatening investor transparency, consumer privacy and national security,” he added.
Senator Bill Hagerty, who sits on the Senate Banking Committee, said in a statement to Reuters: “The Biden administration and the SEC must continue to take steps to ensure that Americans are aware of all the risks of invest in companies that are subject to the rule of the Chinese Communist Party anyway, including the CCP’s key data management. “
A total of 37 Chinese companies have raised $ 12.6 billion through IPOs in the United States so far this year, according to Dealogic, nearly double the $ 6.6 billion raised in the same period l ‘last year.
Plans to strengthen oversight of overseas-listed Chinese companies came days after Beijing launched a cybersecurity investigation into ride-sharing giant Didi Global Inc (DIDI.N) in the wake of its IPO of 4.4 billion US dollars.
Didi is currently in talks with state-owned Westone Information Industry Inc (002268.SZ) to manage its data management and monitoring activities, Reuters reported earlier this month.
The proposed restrictions on Didi could become a possible model for other Chinese data-rich companies looking to go public in the United States, one of the people said.
Beijing’s growing sensitivity to the collection and use of onshore data comes as the highest legislative body on Friday passed a new law designed to protect the privacy of users’ data online. He will implement the policy from November 1.
In September, China is also set to implement its data security law, which requires companies that process “critical data” to conduct risk assessments and submit reports to authorities.
In recent years, the government has increasingly viewed user data as essential to the country’s financial and social stability and has pushed tech giants, including Ant Group, Tencent, and JD.com, to share data from users. consumer loans to avoid excessive borrowing and fraud, Reuters reported in January. Read more
Ant is also in the process of splitting its consumer credit data operations, as part of the company’s overhaul to jumpstart its sale of public stocks.
Reporting by Julie Zhu and Scott Murdoch in Hong Kong Additional reporting by Chris Sanders and Michelle Price in Washington Editing by Sumeet Chatterjee, Kim Coghill and Matthew Lewis
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