China set to tighten foreign funding rules for tech companies

 

• China's crackdown on its technology sector looks set to continue following nearly a year of unwieldly regulatory efforts. It all began in November 2020, when Jack Ma's Ant Group was forced to cancel what would have been the world's largest IPO. Regulatory efforts then turned to data security and protection - with large fines imposed on Alibaba (NYSE:BABA) and food-delivery giant Meituan (OTCPK:MPNGY) - and culminated in a New York Stock Exchange delisting announcement last week by DiDi Global (NYSE:DIDI).
• The latest: China is said to be drawing up a blacklist that will make it harder for new technology companies to raise foreign funding and list overseas, FT reports. The blacklist could be published as early as this month, and would include startups that use a so-called variable interest entity structure, which are controlled by a company by means other than a majority of voting rights. VIEs have been used for decades by Chinese tech groups, such as Alibaba (BABA) and Tencent (OTCPK:TCEHY), to circumvent foreign investment restrictions and raise funds internationally.
• Prompting the decision is the Chinese Communist Party's move away from the proliferation of the private sector, to a more state-owned enterprise economy (or at least having more involvement and control of the business environment). Compared to prior decades, the new economic order is more concerned about the control of data and flows of capital vs. economic liberalization and reforms. The CCP is also fearful that foreign investment could lead to "disorderly capital expansion," which means that foreign interests influence what goes on inside China.