- China wants to ban data-rich companies from listing in the US, The Wall Street Journal reported.
- Companies with less sensitive data are still likely to receive regulatory approval, the report said.
- The SEC has frozen US listings of Chinese companies until they meet new disclosure requirements.
China wants to impose new rules to prohibit tech companies that hold vast amounts of sensitive data from going public in the US, The Wall Street Journal reported on Friday.
The Chinese government has been engaging in a regulatory crackdown that has roiled global financial markets and curbed the country's growth outlook in recent weeks. New restrictions on which companies can pursue US listings would be authorities' latest effort to rein in private-sector businesses.
China's stock-market regulator informed some companies and foreign investors that the new directive would ban companies holding substantial amounts of consumer data from listing abroad, The Journal said, citing sources. It would target Chinese entities seeking to list abroad through shell companies set up in other countries, the sources said.
But not all companies with access to data would be banned from listing in the US. Chinese regulators said those that hold less sensitive data, like pharmaceuticals, could still go ahead with listing abroad, the newspaper said.
SEC Chairman Gary Gensler recently warned that many investors aren't aware of the risks associated with US-listed Chinese stocks, saying: "When you think you're investing in a Chinese company, you're more than likely actually investing in a shell company in the Caymans or another part of the world."
To dodge regulation at home, many Chinese companies that sell their shares abroad do so through a corporate structure called a variable interest entity. The VIE, usually incorporated outside China, allows Chinese corporations to set up shell companies in tax havens such as the Cayman Islands or the British Virgin Islands.
Tech giants including Alibaba, Tencent, and Didi Global have used the VIE legal structure to attract foreign investment.
The SEC froze US listings of Chinese companies in late July, after Gensler asked SEC staff to demand businesses provide full and fair disclosure that investors' money is being directed to shell companies.
The Chinese government doesn't allow foreigners to own or invest in many of its companies. These new rules would likely strengthen Beijing's control of its biggest tech companies, and make it harder for them to escape restrictions on foreign investment.