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Asia CommentGC Asia View

China’s tech oversight: no pain, no gain?

arrow_575px_adobe_9July20

China’s move to tighten its grip on overseas IPOs of technology companies could be a boon to a handful of other markets in Asia.

The Chinese government has, once again, ramped up its oversight of its numerous technology firms. The latest announcement came last weekend, courtesy of the Cyberspace Administration of China (CAC). The CAC said that any company in possession of personal data of at least 1m users must undergo a cybersecurity review before an overseas listing.

That is a low figure for tech companies operating in a country with a population of about 1.4bn.

The CAC also said that a new office for cybersecurity reviews will be set up, and will be responsible for the process. The reviews will focus on assessing national security risks posed by an overseas listing, including the risk of data being “influenced, controlled or manipulated” by foreign governments following an IPO.

The tightening follows a host of other recent actions by China’s regulators on its growing plethora of high-growth technology companies.

Early in July, the CAC set its sights on ride-hailing company Didi, and online platforms Full Truck Alliance and Kanzhun. All recently listed in the US stock market and saw big hits to their trading performance after the regulator unveiled reviews of their businesses.

Didi, for instance, is down 10.75% since its debut on June 30.

And then there is, of course, the government’s last-minute scuppering of Ant’s landmark listing in Hong Kong and Shanghai at the end of last year, followed by a hefty fine on Alibaba Group Holding. It has also asked numerous other technology and fintech firms to toe the line and clean up their businesses.

There are a number of reasons why China has put its tech firms in the spotlight. Key are its intention to halt US-bound listings over concerns about data security and national security, as well as fears about the expanding clout of these fast-developing firms in the mainland.

But its crackdown could very well benefit other capital markets in Asia.

One obvious beneficiary will be Hong Kong’s stock exchange. Companies blocked from listing in the US could set their sights on an IPO in Asia’s financial hub instead. The bourse’s deep liquidity, relatively streamlined listing procedures and its status as a key international financial centre in the region will appeal to mainland firms looking for global reach.

Hong Kong will also be more attractive than a listing domestically in China, given the long regulatory approval process onshore for pricing an IPO.

India’s capital markets are also likely to gain from the China crackdown.

India is seeing the first wave of listings from some of its start-ups and unicorns. This week, for instance, online food delivery platform Zomato kicked off its eagerly-awaited $1.3bn India IPO, backed by a large number of international heavyweight investors that came on board as anchor orders.

In the pipeline for 2021 are also names like digital payment start-up Paytm, fintech company One MobiKwik Systems, which has just filed its IPO documents with the Indian regulator, as well as automobile marketplace CarTrade Tech, online travel portal Ixigo and insurance aggregator PolicyBazaar.

International investors wary about the risk that investing in China tech stocks could bring may very well look closer at the huge growth potential of Indian unicorns. The fact that the country’s BSE Sensex index is up more than 11% year-to-date and the Nifty 50 about 14% is an added bonus. Rejigging of equity portfolios in India's favour may be coming. 

China’s decision to quell its technology companies may likely come at a steep price for those firms having to tussle with the regulators. The US bourses will also surely feel the impact of lower deal flow and volume from mainland IPOs.

For Hong Kong and India’s markets, however, it could bring unexpected gains.

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