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A subtle word choice in China’s revamped rules for overseas listings is stoking speculation that authorities may make it easier for companies to list in Hong Kong than in other offshore financial hubs.

China’s top internet regulator published final regulations Tuesday requiring all companies with more than a million users seeking “foreign” listings to undergo a rigorous data security review starting Feb. 15. That’s a notable change from a related November notice, when the same watchdog mentioned Hong Kong listings specifically as requiring scrutiny if they involved matters of national security, and also employed the term “overseas” — often used to describe Hong Kong, a semi-autonomous Chinese city.

The wording has revived hopes that companies seeking Hong Kong listings won’t automatically be required to undergo a formal data security review. It would be welcome news to investors and the Asian financial center, long the destination of choice for Chinese businesses seeking capital and a global presence.

The pace of major IPOs all but dried up in 2021 after a plethora of government agencies launched a concerted effort to rein in tech giants — by far the biggest capital-raisers abroad.

Companies seeking Hong Kong listings are “not required” to seek approval on data security based on the regulations finalized Tuesday, said Chen Jihong, a data security lawyer at Beijing-based Zhonglun Law Firm. That underscores Beijing’s heightened support toward Hong Kong and growing confidence about its control over the former British colony, he added.

“Chinese regulators believe data security risk in Hong Kong is not as high as overseas markets,” Chen said. “The Hong Kong capital market will definitely see more opportunities as a result.”

Representatives for the Cyberspace Administration of China didn’t respond to calls seeking comment. An official at a separate agency handling enquiries for Tuesday’s notice said the rules shouldn’t encompass Hong Kong listings because “the city isn’t a foreign country.”

From Alibaba Group Holding Ltd. to Tencent Holdings Ltd., China’s largest corporations have for two decades employed a range of structures to attract the foreign capital that’s been key to their rapid ascent over the past decade. The rush to list abroad in turn generated billions of dollars for not just technology firms but also their Wall Street backers.

Then Beijing tightened the spigot in 2021. As part of efforts to exert greater control over the troves of data that underpin their growing influence, the CAC in July proposed legislation requiring companies to undergo data security vetting before going public — days after Didi Global Inc. proceeded with a Hong Kong IPO despite its objections. Neither Tuesday’s finalized regulations nor the original draft specify a requirement for Hong Kong listings.

At the same time, the American securities watchdog has threatened to toss Chinese companies off bourses unless they comply with U.S. auditing requirements, encouraging more IPO candidates to seek floats closer to home.

Regardless of the CAC’s position, dealmakers now have to grapple with uncertainty on several fronts, and Hong Kong listees must still jump through a number of regulatory hoops. Shares in bourse operator Hong Kong Exchanges & Clearing Ltd. slid 1.1% on Tuesday.

Just last month, separate agencies unveiled sweeping regulations governing overseas share sales by the country’s firms, including requiring companies in a swath of industries to seek official waivers before floating overseas. And the securities watchdog now has the power to veto any share sale abroad it deems a threat to national security.

Also in question is the “Variable Interest Entity” model, which employs overseas-registered entities to bypass restrictions on foreign investment. Pioneered by Sina Corp. and its investment bankers during a 2000 IPO, regulators have only started acknowledging their existence in a series of pronouncements and new rules over the past year, though it’s still unclear if Beijing considers them legal.

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