Data security rules key with city riding high in Didi U-turn
- As the company quits New York to prepare for a blockbuster relisting, Hong Kong has to make sure it gets the balance right to ensure that other China firms follow
If every cloud has a silver lining, one has unfolded for Hong Kong among tensions and a tech war between China and the United States.
Investors are big losers, with Didi stock trading at half its initial public offer price.
This follows a five-month cybersecurity review of Didi by the Cyberspace Administration of China, followed by similar reviews of other companies, and new cybersecurity rules for those listing overseas. It also comes days after a move by US authorities for a new law to force foreign firms to open their books to scrutiny or risk being delisted, which could result in many making their way to Hong Kong.
How Didi forced its way from Beijing to New York - and ended up in Hong Kong
Didi’s move would not cause a ripple in New York’s liquidity pool, but is good for Hong Kong.
As a global financial centre with international benchmark standards, Hong Kong is not only a natural alternative, but is playing its role as a gateway to China.
In that respect, while Didi’s backflip may have come as a surprise, Hong Kong was an easy decision.
US-China tension and rivalry have mixed implications for the city, but it can play an even more important role in the future through its status as a financial centre.
That depends, however, on the city constantly reviewing and updating its data security rules, especially for IPOs. Experts say outdated data privacy laws put it out of step with Beijing.
As a result, they say, Hong Kong’s ambition to become a regional data and innovation hub is subject to an increasingly complicated web of security rules that complicate the flow of data between the city and the mainland.
Tech stocks slump in Hong Kong as Didi prepares for US delisting
Nonetheless, Hong Kong remains the ideal choice for mainland firms eyeing IPOs, according to Financial Secretary Paul Chan Mo-po, because being part of the same country means data security is not the usual concern.
That said, the cyberspace administration has drafted a regulation clarifying rules for listing in Hong Kong under which expectations of mainland listing candidates are tightened, although they are more lenient than for foreign firms.
Didi’s unprecedented about-turn will have implications for other Chinese companies planning IPOs.
In the months to come before the 20th National Congress, the market will closely watch developments in the data security area.
The Didi example is a good lesson for other tech companies. In this environment Hong Kong remains an eminently viable listing venue, so long as it strikes a balance between data security and an attractive environment for capital raising and deal-making.
