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China forces firms to test cyber security before foreign IPO listing

The Cyberspace Administration of China is set to apply new rules to firms that hold data on more than one million users.

user iconReporter
Wed, 05 Jan 2022
China forces firms to test cyber security before foreign IPO listing
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Chinese regulators will subject firms with data on more than one million users to a cyber security review before they can list their shares.

According to China’s cyber space regulator, it will implement new rules from 15 February that require platform companies with data on more than one million users to undergo a security review before listing their shares overseas.

The Cyberspace Administration of China (CAC) also said on Tuesday such firms should apply for cyber security reviews before submitting listing applications to foreign securities regulators, according to statements published on its WeChat account.

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Companies will not be allowed to list abroad if the review finds that national security could be impacted, it said.

It was the latest move in a series of recent regulatory changes ordered by the Chinese government to tighten the rules governing offshore listings.

Hong Kong stocks weakened on the CAC news. The Hang Seng Index fell 0.36 percent in early trade on Tuesday, and the city’s tech index lost 1.32 per cent.

Shares in Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong stock exchange, were last down 1.8 per cent, after having fallen as much as 2.4 per cent following the announcement.

Tighter restrictions

The CAC first proposed the rules in July, saying that the security review will put a focus on risks of data being affected, controlled or manipulated by foreign governments after overseas listings.

New rules governing the use of algorithm recommendation technology will also be implemented from 1 March, the CAC said in a separate statement.

Those rules, which were first proposed in August last year, will require companies to give users the right to switch off the service and will also tighten oversight of news providers that use such technology.

China’s cyber space regulators are imposing tighter restrictions on data collection and data storage. Authorities are also more broadly pushing for companies to list domestically.

Two other new sets of rules, the Data Security Law and the Personal Information Protection Law, which cover data storage and data privacy, respectively, went into effect last year.

[Related: Aussie IoT company wins fourth smart sensor contract in China]

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