China said its companies which hold the data of more than 1 million users must now apply for cybersecurity approval when seeking overseas listings, as regulators tighten oversight of the country’s tech giants.
The new rule is required because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” the Cyberspace Administration of China said in a statement on Saturday. The cybersecurity review will also look into the potential national security risks from overseas IPOs, it said.
Authorities this week issued a sweeping warning to the nation’s biggest companies, vowing to boost oversight of data security and overseas listings. So far this year, 37 Chinese companies have listed in the US, surpassing last year’s count, and raised a combined $12.9 billion, according to data compiled by Bloomberg.
The move announced on Saturday is one of the most concrete steps taken yet to restrain the ability of technology firms to raise capital overseas through a so-called Variable Interest Entity model that the likes of Alibaba Group Holding Ltd. to Baidu Inc. and Didi Global Inc. have adopted to list in the US.
Authorities have accelerated a crackdown against overseas listings after Didi was said to push ahead with its debut, despite being asked to delay the plans as early as three months ago. The State Council said Tuesday that rules for overseas listings will be revised while publicly traded firms will be held accountable for keeping their data secure.
The 1-million threshold would mean that nearly all Chinese tech firms currently considering potential IPOs, from TikTok owner ByteDance Ltd. to smaller firms like on-demand logistics and delivery firm Lalamove would have to undergo a cybersecurity review prior to listing.
“These rules will push more Chinese internet firms to list in Hong Kong instead of overseas, to bypass such a review,” said Feng Chucheng, a partner at research firm Plenum in Beijing. “The one million-user threshold is very low and would basically apply to every internet company aspiring for an IPO.”