China is considering a rule change that would close a loophole allowing domestic firms to IPO overseas, report says

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  • Chinese regulators are mulling rule changes that would block offshore listings by domestic companies, Bloomberg reported Wednesday.
  • The rule changes would close a loophole used by Chinese tech companies to launch IPOs in the US.
  • The report follows data security reviews on ride-hailing service Didi whose shares began trading in the US last week.
  • See more stories on Insider’s business page.

Authorities in China are considering a rule change that would allow them to stop domestic firms from listing publicly in overseas markets, according to a Bloomberg report. The loophole has previously been used by Chinese giants like Alibaba and Tencent to IPO in the US.

The report arrives after Chinese regulators initiated a data security review on ride-hailing service Didi and on two other companies after their shares recently began trading in the US equity market. China has been clamping down on technology companies over issues ranging from security to privacy to anti-competitive behavior.

The China Securities Regulatory Commission is spearheading the revisions. Once changed, the rules would require companies that are structured using a so-called Variable Interest Entity model to seek approval before going public in Hong Kong or the US. The overseas listings rules have been in place since 1994 and do not reference companies registered in places like the Cayman Islands, sources told Bloomberg.

The proposed rule changes in China could dent the business prospects of the Wall Street banks who work on the stock offerings. Chinese companies over the past 10 years have raised about $76 billion through first-time share sales in the US, the report said.

Didi shares that began trading in the US last week have plunged since China said it would conduct a cybersecurity review on the company. The stock on Tuesday dropped below the IPO price of $14 after Chinese authorities ordered app stores to remove Didi from their platforms after the Cyberspace Administration of China alleged violations in the collection and use of personal data.

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