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The Xiaohongshu icon seen on a smartphone on June 10, 2020. The operator of the social e-commerce app has raised another US$500 million after being forced to put its IPO plans on hold. Photo: Shutterstock

Chinese social e-commerce app Xiaohongshu raises US$500 million as IPO plans hit roadblock amid regulatory tightening

  • The platform known as China’s answer to Instagram raised the money from existing investors after being forced to put IPO plans on hold
  • Xiaohongshu is one of several tech companies that planned to list overseas until Beijing made government probes part of the process
Social e-commerce app Xiaohongshu, known as China’s answer to Instagram, has raised US$500 million from existing investors in a new fundraising round after the company was forced to put its plans for an initial public offering on the back burner amid Beijing’s heightened scrutiny of overseas listings, according to a source briefed on the matter.
The new funding for Shanghai-based Xiaohongshu, which means “little red book”, boosted the company’s valuation to US$20 billion, according to the source, who asked not to be named because the matter is private. The round was led by Singapore state investor Temasek Holdings and Tencent Holdings. Genesis Capital, Tiantu, and Alibaba Group Holding, owner of the South China Morning Post, also invested.

Xiaohongshu confirmed that it raised new funding primarily from existing investors, but it declined to name those investors or the amount raised. The news was first reported by Chinese tech news site 36kr on Monday.

China’s answer to Instagram is sorry for over-filtered images

The company filed confidentially to list in the US earlier this year, but the plan was put on hold after Beijing increased regulatory oversight of overseas listings, the Post reported in July.

Since the regulatory changes, Xiaohongshu’s IPO plans have been a guessing game. In October, Bloomberg News reported that the company was looking at listing in Hong Kong to raise US$500 million, but the company denied the report, saying it had no specific IPO plans.

Beijing’s regulatory overhauls have hit numerous tech companies that have listed or planned to list overseas. After going public in New York at the end of June, ride-hailing giant Didi Chuxing, Boss Zhipin and Full Truck Alliance were all hit with cybersecurity reviews. Didi went ahead with the IPO despite warnings from the Cyberspace Administration of China.
Later in July, Beijing introduced a draft regulation that would require any company with the personal information of more than a million Chinese users to go through a cybersecurity review if they want to list overseas. Questions remain over whether such rules apply for listing in Hong Kong.
Another draft regulation, made public last month for public feedback through November 28, proposes additional requirements for Chinese businesses wanting to transfer Chinese data abroad. The new rules would require a government review for the cross-border transfer of the personal information of more than 1 million Chinese residents.

Founded in 2013 by Miranda Qu and Charlwin Mao, Xiaohongshu rose quickly in popularity in China by merging shopping and social media. Initially designed to help travellers plan overseas shopping lists, it has evolved into a place for people to share shopping experiences and detail the quality of products.

It is now a go-to platform for China’s Generation-Z users to find what to buy, where to visit, and even which hotels to book for quarantining. But the rise of the creator economy has also led to criticism of the platform.

Chinese lifestyle platform puts US IPO on hold amid Beijing crackdown

The company apologised last month for the “over-beautified” photos posted by bloggers, which gained attention when users complained on social media about the contrast between the heavily filtered images and the actual travel destinations.
The app was also one of 38 recently required by China’s Ministry of Industry and Information Technology (MIIT) to “rectify” violations related to excessive data collection and publishing misleading information.

Despite e-commerce being a core function of the app, most of its revenue still comes from advertising. As of September, the company had more than 148 million monthly active users, according to research firm Analysys. Women account for 67 per cent of its users, and nearly 90 per cent of users are under the age of 35.

This article appeared in the South China Morning Post print edition as: ‘China’s Instagram’ raises US$500m after IPO setback