China to order cybersecurity reviews for firms seeking overseas listings

According to the Cyberspace Administration of China (CAC), the new rules come into effect on 15 February and will require platform companies with data on over one million users to undergo a security review before listing their shares overseas.

“With stock market listings there is a risk that key information infrastructure, core data, important data or a large amount of personal information could be impacted, controlled or maliciously used by foreign governments,” said the CAC in a statement, reiterating a concern flagged in July 2021, when the changes were first proposed.

In a separate statement, the CAC said it would also implement new rules on 1 March on the use of algorithm recommendation technology to increase oversight of news providers that use the technology to disseminate information. The rules will also give users the right to switch off the service if they choose.

Both sets of rules were proposed last year and are expected to 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 have dampened the appetite of firms to list overseas, but bankers hope the new rules will provide more clarity in 2022. It has not been specified whether the rules will apply to companies seeking listings in Hong Kong, but lawyers and bankers said that based on the wording of the rules, Chinese companies with over one million users seeking to list there would not be required to seek the cybersecurity review.

“Hong Kong is being treated as part of China, offshore though not foreign market, and this paves the way for more deals to return to Hong Kong,” one investment banker at a Western institution told Reuters, asking not to be named as he was not permitted to speak to the media.

In Hong Kong, the Hang Seng Index closed up 0.06 per cent after trading in negative territory for most of the session, but the city’s tech index lost 1.04 per cent. Shares in Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong stock exchange, closed down 1.1 per cent. They fell as much as 2.4 per cent following the announcement.

“If this is not retrospective, then it would only affect listing aspirants and not companies already listed. 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 rules published did not specify whether the planned changes would be retrospective.