China to Enact Cybersecurity Reviews for Some Overseas Listings

The new rules, proposed last Friday, would apply to companies with data for more than 1 million users
Jan. 04, 2022 16:21
China to Enact Cybersecurity Reviews for Some Overseas Listings

(CapitalWatch, Jan. 4, New York) The Cyberspace Administration of China (CAC) announced Tuesday that platform companies with data for more than 1 million users will be required to undergo a security review before listing their shares overseas as part of new regulations effective Feb. 15.

The new regulations on a process that had gone practically unchecked for years were initially proposed over the summer and focus on the risks of influence of manipulation of data by foreign governments after listing. Under the new rules, the CAC said firms that meet the criteria should apply for cybersecurity reviews ahead of submitting listing applications to foreign securities regulators. The regulator also implemented increased scrutiny on companies listing in Hong Kong in November, requiring them to undergo a cyber security review if the sale could implicate national security.

The new regulations follow Beijing yanking Didi Global's New York Stock Exchange listing based on national security concerns in late November. Didi, which held the largest listing by a Chinese company in the U.S. since Alibaba's 2014 debut, complied with the Chinese government's request to delist in New York and are now reportedly seeking a "listing by introduction" on the Stock Exchange of Hong Kong, which would allow U.S. shareholders to gradually transfer shares over. Authorities had previously asked Didi to pause the IPO ahead of its June 30 launch, pending the resolution of cybersecurity concerns and four days after Didi's IPO, the CAC announced that it had ordered smartphone app stores to halt offering Didi's app after finding that the company had illegally collected users' personal data.

In the wake of the latest move from the CAC to crack down on data protection, Reuters reported that the Hang Seng Index fell 0.36% in early trade on Tuesday and the city's tech index lost 1.32%.

The CAC also separately announced new regulations on the use of algorithm recommendation technology to be implemented March 1, and had previously enacted the Data Security Law covering data storage and the Personal Information Protection Law covering data privacy last year.