China to order cybersecurity reviews for some firms seeking overseas listings

China to order cybersecurity reviews for some firms seeking overseas listings

CHINA. The Chinese national flag is seen in Beijing, China, April 29, 2020.

Thomas Peters/Reuters

From March 1, China will also implement rules governing the use of algorithm recommendation technology

SHANGHAI, CHINA – China on Tuesday, January 4, said it would put in force new rules that will strengthen oversight over how its platform companies make plans to list abroad or use algorithms, in moves set to further tighten Beijing’s grip over its sprawling technology sector.

The Cyberspace Administration of China (CAC) said it would from February 15 implement new rules that require platform companies with data for more than 1 million users to undergo a security review before listing their shares overseas.

From March 1, it will also implement rules governing the use of algorithm recommendation technology, it said in a separate statement.

Both sets of rules were proposed in 2020 and are expected to potentially impact a large swathe of companies, such as TikTok owner ByteDance, e-commerce giant Alibaba Group and many more 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 certainty in 2022.

In Hong Kong, the Hang Seng Index fell 0.36% on Tuesday and the city’s tech index lost 1.44%.

Shares in Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong stock exchange, were last down 1.9%, after having fallen as much as 2.4% following the announcement.

“If this is not retrospective then it would only affect listing aspirants and not companies already listed. Having said that, 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 CAC changes come a week after China’s state planner said it would demand regulatory clearance for overseas Chinese listings in sensitive sectors, part of Beijing’s efforts to set up a new framework to scrutinise offshore listings.

Separately, the China Securities and Regulatory Commission (CSRC) proposed on December 24 tightening rules governing Chinese companies listing abroad by requiring them to submit filings to the agency first, under a system that also involves close coordination among various regulatory bodies.

The CAC first proposed the cybersecurity reviews in July, saying they would put a focus on the risks of data being affected, controlled or manipulated by foreign governments after overseas listings.

The new rules governing the use of algorithm recommendation technology, first proposed in August 2020, will require companies to give users the right to switch off the service and will also tighten oversight of news providers that use such technology.

China’s cyberspace regulators are imposing tighter restrictions on data collection and data storage. Authorities are also more broadly pushing for companies to list domestically.

Two other new sets of rules, the Data Security Law and the Personal Information Protection Law, which cover data storage and data privacy respectively, went into effect last year. –