No Laughing Matter: China's Technology Crackdown​

By Adelina Budulan​
The Story

In June 2021, Didi joined the New York Stock Exchange and raised over US$4 billion, marking the biggest US listing by a Chinese company since Alibaba (BBC). Days after, the Cyberspace Administration of China (CAC) blocked new users from downloading Didi’s ride-hailing app and subsequently ordered its removal from app stores (The Economist). Violations of national security and cybersecurity laws were cited in justification, particularly regarding the collection and use of personal data (Financial Times). One-fifth of Didi’s market value was lost as a result, prompting two shareholders to sue the company (Bloomberg).

The CAC has launched investigations into two other US-listed companies, Full Truck Alliance and Kanzhun, citing the need "to prevent national data security risks, maintain national security and protect the public interest" (Forbes). Chinese authorities have expressed an intention to tighten the rules surrounding foreign listings altogether, which is expected to have a chilling effect (The Economist).

What It Means For Businesses And Law Firms

Following in America and Europe’s footsteps, China is tightening its grip on large technology companies. In September, the country will implement the Data Security Law – an extensive piece of legislation which requires companies processing “critical data” to perform periodic risk assessments and report their findings to the authorities (Reuters). The events surrounding Didi demonstrate the Chinese government’s commitment towards strengthening its stance on cybersecurity. Since going public requires disclosure of sensitive information regarding supply chains, it has been argued that Beijing is also indicating its preference for technology companies to pursue domestic listings, as “it [would] be easier to control [risks]” (Reuters).

A partner at a prominent US law firm has reportedly stated that “listing in the US will now be a cautionary tale for Chinese companies and US investors” (Financial Times). As a case in point, medical data company LinkDoc has cancelled its proposed listing on the New York Stock Exchange (Financial Times). Other companies may follow suit, and some may choose to list in Hong Kong, Shanghai or Shenzhen instead. It has been argued that companies already listed in the US may feel pressured to delist or consider share buybacks (Financial Times).

Companies in breach of cybersecurity requirements may be fined, receive orders to make corrections, have their operations suspended, or have their business licences revoked (CMS Law-Now). As such, law firms with offices in China or expertise in Chinese law will likely be called upon to ensure clients comply with the necessary requirements. If Chinese technology companies move to pursue blockbuster IPOs domestically, law firms with well-regarded capital markets practices in China will likely reap the benefits.

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