China reportedly weighs ban on U.S. IPOs from domestic tech companies with sensitive data

PUBLISHED FRI, AUG 27 2021 7:44 AM EDTUPDATED FRI, AUG 27 2021 9:25 AM EDT

Yun Li@YUNLI626 CNBC

Beijing is eyeing new rules that would restrict domestic internet companies from going public in the U.S., The Wall Street Journal reported Friday.

Chinese regulators are specifically targeting tech firms with user-related data, and companies that are less data-heavy such as pharmaceuticals could be insulated from the IPO ban, the Journal reported, citing people familiar with the matter.

Shares of Alibaba fell nearly 3% in premarket trading Friday after losing 15% this month alone. The Invesco Golden Dragon China ETF (PGJ), which tracks U.S.-listed Chinese shares consisting of ADRs of companies that are headquartered and incorporated in mainland China, has lost 26% this quarter amid the increased regulatory pressure.

The new rules haven’t been finalized and Beijing plans to implement them around the fourth quarter, the Journal reported.

Earlier this week, China’s cybersecurity regulator laid out two aspects of regulation that companies wanting to go public must comply with — one is the national laws and regulations, and the other is ensuring the security of the national network, “critical information infrastructure” and personal data.

These industries with critical data include public communication and information services, energy, transportation, waterworks, finance and public services, the regulators said previously.

Beijing is already cracking down on industries from tech to education and gaming, while tightening restrictions on cross-border data flows and security. The government has gone after some of China’s most powerful companies, including Didi, Alibaba and Tencent.