On Sunday, China’s internet watchdog issued draught guidelines requiring businesses listed in Hong Kong to undertake a cyber-security examination if the stock sale may jeopardize national security, challenging a recent migration by IT groups in the region. The Cyberspace Administration of China (CAC), the country’s prominent data police, stated in July that it will tighten requirements for firms looking to list abroad, requiring those with more than 1 million users to undergo a security assessment. The rules did not indicate whether the clause would pertain to Hong Kong at the moment. The CAC opened an investigation against Didi Chuxing for possible data infractions 2 days after its USD 4.4 billion IPO on the New York Stock Exchange in June.
During the probe, the ride-hailing business was obliged to halt new customer registrations. After the cyber security checks delayed a potential listings pipeline in the US, international investment bankers rushed during the summer to steer Chinese businesses to stay afloat in Hong Kong, which was considered as a more politically acceptable location for technology firms to leverage international capital marketplaces. After dropping plans to list in New York, Ximalaya, a prominent Chinese podcast, and audio website applied for an IPO in Hong Kong in September. According to the Financial Times, ByteDance, the owner of the ubiquitous short-video software TikTok, has rekindled ambitions to go public in Hong Kong by early next year.
The draught guidelines issued on Sunday were the first time Beijing stated that some Hong Kong share purchases will be susceptible to cyber security assessments. It also came after the implementation of a comprehensive data protection framework, which provided the CAC with increased authority to investigate how Chinese corporations handle customer data. However, the notification did not explain the prerequisites for this level of inspection. Asia-Pacific stocks to consider Chinese tech financing are expected to fall for the first time in seven years. In addition, while seeking a merger, organizations holding vast volumes of data important to China national security, economics, or social objectives would be required to submit to a cyber-security evaluation.
Internet businesses wishing to build headquarters abroad, operations centers, or R&D facilities must also notify Chinese officials in advance, according to the CAC. The draught guidelines were released one day before the debut of the Beijing Stock Exchange, a newly established market that would generate capital for innovative small start-ups as China attempts to encourage enterprises to utilize local exchanges. The Beijing Exchange is part of the government’s larger aim to develop indigenous IT leaders and reduce reliance on foreign businesses.