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China steps up supervision of overseas-listed firms after Didi IPO drama

EconomyJul 06, 2021 07:25PM ET
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2/2 © Reuters. FILE PHOTO: The Chinese national flag is seen in Beijing, China April 29, 2020. REUTERS/Thomas Peter 2/2

(Corrects to show fund-raising figure includes Didi IPO in 12th paragraph)

By Tony Munroe and Kevin Yao

BEIJING (Reuters) - China will step up supervision of Chinese firms listed offshore, its cabinet said on Tuesday, days after Beijing launched a cybersecurity investigation into ride-hailing giant Didi Global Inc on the heels of its U.S. stock market listing.

Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, China's cabinet said in a statement.

China will also check sources of funding for securities investment and control leverage ratios, it said.

China's shift against companies listed overseas is a significant move in a sweeping clampdown on its massive and once-freewheeling online "platform economy".

U.S. capital markets have been a lucrative source of funding for Chinese firms over the past decade but the risk of additional scrutiny may now deter domestic firms from listing there.

Earlier on Tuesday, Didi shares slumped as much as 25% in U.S. pre-market trade ahead of their first session since the Cyberspace Administration of China ordered the company's app be removed from app stores in the country just days after its $4.4 billion listing on the New York Stock Exchange.

U.S.-listed Chinese companies including Full Truck Alliance and Kanzhun Ltd were also set to open lower on Tuesday after the CAC on Monday announced cybersecurity investigations into their affiliated businesses.

"Crackdown on Didi opens a new front in China's tech assertiveness: this is now a question of sovereignty," investment research provider TS Lombard's China economist Rory Green wrote in a note.

"The battle for data sovereignty is beginning and China is already fully mobilized. It is increasingly clear that governments around the world have recognized the importance of data and the need to regulate the utility like private firms that control its production and flow."

In March, the U.S. securities regulator began a rollout of rules to exclude foreign companies from U.S. exchanges if they did not comply with U.S. auditing standards, a move aimed at removing Chinese firms from U.S. exchanges if they fail to comply with U.S. auditing standards for three straight years.

In May, Reuters reported that Beijing was pressing audio platform Ximalaya to drop U.S. listing plans and opt for Hong Kong instead, with one source at the time citing Beijing's growing concerns that U.S. regulators will potentially gain greater access to audit documents of New York-listed Chinese companies.

A record $12.5 billion, in 34 deals, has been raised so far in 2021 from Chinese firms listing in the United States, Refinitiv data shows, including Didi, which started trading on June 30.

Several big U.S.-listed Chinese companies, however, including internet giants Alibaba (NYSE:BABA) and Baidu (NASDAQ:BIDU), have issued shares in Hong Kong in the past two years.

U.S. exchanges have long been popular listing venues for Chinese tech firms attracted by deep liquidity, high valuations, easier profitability rules and prestige.

 

 

China steps up supervision of overseas-listed firms after Didi IPO drama
 

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Comments (5)
Khwarizmi Algebra
Khwarizmi Algebra Jul 07, 2021 3:16AM ET
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To me, its good news. Its simply putting regulations against fraud companies that manipulate data in order to get fund. This should make investors feel more secure when investing in chinese stocks.
Notvery Goodathis
Peteymcletey Jul 07, 2021 12:48AM ET
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did I read the wrong article? this sounds like good news but presented as bad. the crackdown makes it seem like companies listed in US will be under more scrutiny.... which is what everyone claims is missing from Chinese stocks.how is this not all good then?
john dislias
john dislias Jul 06, 2021 12:08PM ET
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Tme is the safest and undervalued
divad mocihc
9divaD Jul 06, 2021 12:08PM ET
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TME just dropped below support
James Pattison
James Pattison Jul 06, 2021 10:59AM ET
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Why does the usa allow china free and fair access to its economy when the usa doesnt have free and fair access to chinas economy?
Kaveh Sun
Kaveh Sun Jul 06, 2021 9:22AM ET
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Ccp rules dont allow foreigners to own any land, property nor company in China.
Aux Gold
Aux Gold Jul 06, 2021 9:22AM ET
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We should do the same as china then
Khwarizmi Algebra
Khwarizmi Algebra Jul 06, 2021 9:22AM ET
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Some countries are the same but they are gradually allowing ownership in some areas. That doesnt really harm revenues. Take for example some US companies have mega factories there.
 
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