China Makes Plans to Ban Some Foreign IPOs

Chinese Companies With Sensitive Data Will Be Prevented From Listing in the US

Tensions between Washington and Beijing surrounding technology and data privacy have been running high for some time. The conflicts have impacted Chinese and American companies as well as investors around the world.

In recent weeks, Chinese stock market regulators have said they plan to propose a new set of rules which would prohibit certain Chinese companies from listing in the US. The ban would apply to Chinese companies with significant amounts of sensitive consumer data. Companies with less private data, like those in the pharmaceutical industry, would likely still be allowed to pursue foreign listings. The move is motivated by concerns about Chinese national security.

New Regulations for Chinese Tech Giants

For years, Chinese tech companies have used a complex corporate structure to get around foreign investment restrictions. Chinese technology companies including Alibaba (BABA), DiDi (DIDI), and Tencent Holdings (TCEHY), have had success trading in the US through a corporate structure called a Variable Interest Entity.

The new rules would allow Beijing to exert more control over companies using this structure. The regulations would also require Chinese companies to apply for formal approval from a cross-ministry committee for overseas IPOs. At the moment, private companies in China are not required to get approval for foreign listings.

Unanswered Questions

The new rules proposed by the Chinese regulators still need to be finalized. It is likely that they will be implemented in the fourth quarter of the year. China has asked some companies to put off their foreign IPOs until then.

There are still a number of questions surrounding how the regulations will impact the way that Chinese companies gain access to foreign capital. It is also not yet clear how the rules will affect companies which already trade on foreign markets.

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