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China’s cyberspace regulator lays out two main conditions for companies wanting to go public

Computer code is seen on a screen above a Chinese flag in this July 12, 2017 illustration photo.

Thomas White | Reuters

BEIJING — Chinese companies wanting to go public — including overseas — must comply with two main aspects of a wider set of regulations, the vice minister for the country’s cybersecurity regulator said Tuesday.

One is the national laws and regulations, said Sheng Ronghua, vice minister of the Cyberspace Administration of China. The other is ensuring the security of the national network, “critical information infrastructure” and personal data.

The comments on the importance of these two rules in particular come as policy uncertainty this summer has essentially halted Chinese listings in the U.S., after a surge in overseas offerings earlier this year.

The remarks also come from the Cyberspace Administration of China, which has grown its clout in recent months. It ordered app stores to remove Chinese ride-hailing app Didi just days after its massive U.S. IPO in late June. The regulator also told subsidiaries of two other Chinese companies that recently listed in the U.S. to suspend new user registrations while undergoing a probe to “prevent national data security risks.”

In late July, a source familiar with the matter said China Securities Regulatory Commission Vice Chairman Fang Xinghai told major investment banks that Chinese companies can still go public in the U.S. using the commonly used legal structure known as the variable interest entity structure — barring national security concerns.

The Cyberspace Administration Vice Minister Sheng was speaking to reporters Tuesday in Mandarin at a press briefing on a new policy to protect critical information infrastructure, set to take effect on Sept. 1.

As he pointed out, article 2 of the policy defines such infrastructure as areas in which dysfunction or data loss would endanger national security, the economy, people’s livelihoods and the public interest. These industries include public communication and information services, energy, transportation, waterworks, finance and public services, according to the policy document.

The policy calls for a national security review of Chinese purchases of network products and services, with fines or detention upon failure to comply.

In response to a question about whether foreign ownership made a difference, Sheng said the form of business ownership should not define “critical infrastructure.”

“For a long time, we have actively supported internet information companies to finance themselves and develop according to laws and regulations,” he said, according to a CNBC translation.

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