Six months ago, China’s securities authority announced a set of new rules to facilitate overseas IPOs of Chinese companies, allowing Beijing to tighten its grip on businesses seeking to sell shares abroad. Since then, companies have committed themselves to meeting these new requirements, and now news is surfacing that some have managed to receive regulatory clearance in this new era.
The new policy greatly slowed down the pace of Chinese IPOs in the U.S., which totaled only six for the four quarters between Q3 2021 and Q2 2022, according to financial data aggregator Wind. There are signs of a rebound, as Q1 this year recorded 13 Chinese IPOs in the U.S. alone.
Zeekr has obtained the green light to issue up to 926,074,300 common shares on the New York Stock Exchange, according to an announcement from the China Securities Regulatory Commission. A separate notice from CSRC said WeRide has been allowed to issue up to 159,045,000 common shares on either the NYSE or Nasdaq.
One focus of the new listing rules is around data security. Both companies are potentially handling data that flows across China’s borders. Zeekr, whose valuation has surged to $13 billion in just two years, has ambitious plans to sell its EVs internationally; WeRide, valued at $5.1 billion in a Series D+ funding round last October, is one of the rare autonomous driving companies conducting road tests in both China and the U.S.
Their cross-border businesses make them important targets of China’s cybersecurity authority. According to the new overseas listing rules, in certain circumstances, companies must undergo a data security review process with the relevant regulator before even seeking approval from the securities authority.
You might recall, in mid-2021, China initiated a data probe into Didi shortly after the ride-hailing giant floated its shares in the U.S., citing concerns over the company’s handling of cross-border data that could pose a risk to China’s national security. The pre-filing data security check then emerged after the Didi incident and has now become a standard procedure for any Chinese firm seeking IPOs offshore, including on the Hong Kong Stock Exchange.
As we wrote at the time:
A memo of an “expert meeting” shared among Didi’s investors, which TechCrunch reviewed, said the ride-hailing firm had failed to assure Beijing its data practices were secure before going public in New York. A major concern was that Didi’s data, if unguarded by Chinese laws, could be subject to scrutiny by U.S. regulators. But a Didi executive claimed that the firm stored all its China data locally and it is “absolutely not possible” that it passed data to the U.S.
The security review applies to a wide range of companies, including those whose top management comprises mostly Chinese citizens, regardless of whether they generate revenues in China, and network operators with over 1 million Chinese user data — which is an easy threshold to cross considering the country’s 1 billion internet population. While some companies have the financial and government resources to meet the new strict rules, others have chosen the decoupling path as they give up their home market and seek foreign passports, as we previously reported.