China plans to exempt companies going public in Hong Kong from first seeking the approval of the Chinese cybersecurity regulator, removing one hurdle for businesses that list in the territory instead of the US, people familiar with the matter said.
The exemption was outlined by officials in meetings with bankers, after a government statement on Saturday last week announcing a new review process for foreign listings prompted questions over whether it would apply to Hong Kong, the people said, asking not to be identified as the discussions are private.
The Cyberspace Administration of China will vet companies to ensure that they comply with local laws, but only those headed to other countries, such as the US, will undergo a formal review, the people said.
All listings, including those in Hong Kong, will require a sign-off from the China Securities Regulatory Commission under the new framework, the people said.
Bankers briefed by the commission came away with the impression that the approval process for Hong Kong would be less onerous than for the US.
The commission and the cyberspace agency did not immediately respond to requests for comment.
Beijing is overhauling the way it regulates initial public offerings (IPO) as part of a broad campaign to tighten oversight of companies such as Didi Global Inc (滴滴) and ByteDance Ltd (字節跳動) that control reams of valuable user data.
It has entwined the importance of data with that of national security and the battle for technological supremacy with the US, fueling speculation that regulators will use the new cybersecurity review to end the flood of Chinese companies going public in New York.
Some companies are already reconsidering their plans.
Bloomberg on Friday last week reported that Chinese social media and e-commerce start-up Xiaohongshu (小紅書), or “Little Red Book,” is putting its US IPO on hold.
Chinese on-demand logistics and delivery firm Lalamove (貨拉拉) is weighing a venue switch from the US to Hong Kong, people familiar with the matter said earlier this week.
The cybersecurity exemption for Hong Kong, which is a special administrative region of China, would help soften the blow for international banks such as Morgan Stanley that have earned about US$6.4 billion in fees from offshore listings by Chinese companies since 2014.
About 60 percent of that was generated from Hong Kong listings.
It would also add to the tailwinds for Hong Kong Exchanges & Clearing Ltd. The bourse’s stock has surged in the past few years as the political standoff between Beijing and Washington spurred Chinese technology giants, including Alibaba Group Holding Ltd (阿里巴巴), to seek secondary listings in Hong Kong.
While preventing Chinese companies from listing in the US would curb their access to the country’s vast pool of individual savers, most of the big institutional investors in the US are already active in Hong Kong’s US$6.9 trillion stock market.
The territory’s currency is linked to the US dollar and is not subject to capital controls like in mainland China, making it a viable alternative to New York for company founders and international money managers.
US President Joe Biden’s administration plans to issue a warning to US companies about doing business in Hong Kong, but it does not plan to order them to scale back investments or leave the territory.
As part of China’s clampdown on IPOs, the commission is leading efforts to close a loophole that allowed companies to list overseas without regulatory approval if the unit selling shares was incorporated outside China, people familiar with the matter said last week.
The loophole has been used by firms from Alibaba to Tencent Holdings Ltd (騰訊) to sidestep Chinese restrictions on foreign investment in sensitive industries, using the so-called variable interest entity model.
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