China’s internet watchdog extends support for nation’s tech firms to raise funds abroad, signalling shift from hardline stance

The Cyberspace Administration of China on Friday backed tech firms’ fundraising overseas amid increased cybersecurity regulations
The internet watchdog’s public comments reflect efforts by China’s top leadership to ‘normalise’ regulation of the tech sector after past crackdowns

Regulation

Iris Dengin Shenzhen

Published: 8:22pm, 19 Aug, 2022

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China’s internet watchdog on Friday gave its strongest public endorsement to date for domestic technology companies to raise funds overseas, signalling a shift in Beijing’s hardline regulatory stance amid the country’s flagging economy.

The Cyberspace Administration of China (CAC) sought to allay investor concerns and dampen market speculation at a press conference in Beijing, where officials extolled the virtues of the nation’s policy of opening up its economy.

“China’s determination to increase its openness will not change, and China’s determination to share its development opportunities with the rest of the world will not change,” said Sun Weimin, head of the cybersecurity coordination bureau at the CAC.

She said the CAC “always supports domestic companies to raise funds in overseas capital markets in accordance with laws and regulations”.

Sun Weimin, head of the cybersecurity coordination bureau at the Cyberspace Administration of China. Photo: Weibo

The internet regulator’s latest public comments reflect efforts by China’s top leadership to “normalise” regulation over the tech sector, following a sweeping crackdown that started in late 2020 – an exercise that led to trillions of dollars in companies’ market value being wiped out across New York and Hong Kong, while deterring venture funding for Chinese tech start-ups.

It also shows the CAC’s solid regulatory footing at present. This September, China will implement its strict new cross-border data transfer regulation, which will require “important” and massive data transfers from the country to destinations outside its borders to be subject to security review. The CAC has the discretion to conduct a review indefinitely.

This February, the Cybersecurity Review Measures – a regulation jointly signed off by 13 Chinese ministerial bodies – came into effect. It requires any Chinese internet company, handling data of more than 1 million users, that seeks to go public in a “foreign” market to be evaluated by the Cybersecurity Review Office, a unit inside the CAC.

The Cyberspace Administration of China headquarters in Beijing. Photo: Baidu

Establishing that regulatory infrastructure followed the CAC’s unprecedented cybersecurity investigation of Chinese ride-hailing giant Didi Chuxing, two days after its public listing in New York as Didi Global. The year-long review concluded this July after the CAC slapped Didi with an 8.026 billion yuan (US$1.2 billion) fine.

Niu Yibing, a CAC deputy director, said at Friday’s press conference that the agency is committed to “safeguarding the development of the internet industry” by restraining the behaviour of some companies and filling gaps in regulations.

The CAC summoned more than 3,400 operators of websites and other online platforms in the first half this year, while slapping fines on 283 companies for various violations, according to Niu.

China’s cyberspace regulator cites ‘significant results’ in online crackdown

The CAC’s public support for overseas fundraising comes at a time when the US is pressing China to comply with its auditing rules or have more Chinese firms face delisting from American exchanges. Securities and Exchange (SEC) chair Gary Gensler recently indicated that it was unclear whether a deal with China on the US audit requirement could be reached.

More than 150 Chinese companies are now on the SEC’s provisional line-up of firms to be delisted, including e-commerce firms Alibaba Group Holding, JD.com and Pinduoduo. Alibaba owns the South China Morning Post.

Will China’s new data rules erode Hong Kong’s edge as gateway city?

In April, Beijing indicated that it wanted China’s internet firms to play a more important role to help bolster the nation’s faltering economy, which has been battered by lockdowns and other stringent Covid-19 control measures.

The China Securities Regulatory Commission, meanwhile, said in March that the government will continue to widen companies’ access to capital markets.