China introduces new rule for some firms to undergo cybersecurity review before overseas listings

• Internet firms holding the data of more than 1 million users will have to undergo a network security review before overseas IPO from February 15

• The news rules are aimed at firms that carry out data processing activities that could affect national security

China on Tuesday said the government will enforce new rules to increase its oversight on some Chinese companies with large amounts of user data, planning to list overseas, in the latest move to tighten its grip on its sprawling technology sector.

The security review process, which was first proposed last year by the Chinese government, will be implemented by the increasingly powerful Cyberspace Administration (CAC), and the new rule will come into effect from February 15.

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Internet companies holding information of more than 1 million individual users will have to apply for a network security review with the regulators before carrying out an overseas IPO.

“With stock market listings, there is a risk that key information infrastructure, core data, important data or a large amount of personal information could be impacted, controlled or maliciously used by foreign governments,” said the CAC in a statement.

Controlling cross-border data flow

In 2021, China said it was planning to introduce a new law to ban domestic tech firms from going public in the U.S. to consolidate crackdown on industries to tighten cross-border data flows and security restrictions.

The CAC said the new rules are aimed at companies that carry out data processing activities that could affect national security, suggesting that the regulators will approve overseas listing if the regulators find that a company’s data processing activities do not endanger national security.

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However, the Chinese agency did not specify whether the rules would also be applicable to companies seeking listings in Hong Kong.

Regulations after DiDi listing

The CAC move comes amid a slew of regulations introduced by Beijing over the past year as the nation looks to reign in the power of the domestic tech giants and stamp out anti-competitive behavior.

The country also opened its first cybersecurity probe into DiDi last year, just days after the ride-hailing giant listed itself in the U.S.

DiDi reportedly drew the ire of China by listing in the U.S. without carrying out a review.

In December, the ride-hailing giant said it would delist from the New York Stock Exchange (NYSE) and pursue a listing in Hong Kong.

Picture Credit: Pymnts