Chinese regulators step up supervision of listed firms abroad following Didi’s IPO scandal

Beijing is stepping up supervision of its companies listed abroad, said its cabinet in a statement. The development comes in the wake of China launching a cyber security investigation into Didi Global Inc just after its US IPO.

In a statement China’s cabinet said, under the new measures, Beijing aims to improve regulations of cross-border data flows, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading; it also aims to check sources of funding for securities investments and control leverage ratios.

U.S. capital markets have been a lucrative source of funding for Chinese companies in the past decade. Despite risk of delisting in the US, since the many Chinese companies do not comply to US accounting standards, domestic firms continue to flock to the US.

Earlier on Tuesday, Didi’s shares slumped by 25% in U.S. pre-market trade ahead of their first session after the Cyberspace Administration of China ordered the company’s app to be removed from Chinese app stores. US investors got the shock of their lives since this probe comes just days after Didi’s $4.4 billion listing on the New York Stock Exchange.

“Crackdown on Didi opens a new front in China’s tech assertiveness: this is now a question of sovereignty,” wrote Rory Green, a China economist at investment research provider TS Lombard. “The battle for data sovereignty is beginning and China is already fully mobilized. It is increasingly clear that governments around the world have recognized the importance of data and the need to regulate the utility like private firms that control its production and flow.”

Earlier this year in March, the U.S. securities regulator began rolling out rules to exclude foreign companies from U.S. exchanges if they did not comply with U.S. auditing standards – a move aimed at removing Chinese firms from U.S. exchanges if they fail to comply with U.S. auditing standards for three straight years.

In May, Beijing was pressing audio platform Ximalaya to drop U.S. listing plans and instead opt for Hong Kong over concerns that U.S. regulators will potentially gain greater access to audit documents of New York-listed Chinese companies.

So far, Chinese companies have raised a record $12.5 billion through 34 deals in the United States, including Didi.

Several large U.S.-listed Chinese companies, including Alibaba and Baidu, have also issued shares in Hong Kong in the past two years.

U.S. exchanges have long been popular listing venues for Chinese tech firms attracted by deep liquidity, high valuations, easier profitability rules and prestige.

Categories: Creativity, Entrepreneurship, HR & Organization, Strategy

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