(Reuters) – Chinese regulators are considering pressuring data-rich companies to hand over the management and monitoring of their data to third-party companies if they want US IPOs, sources said, as part of Beijing's unparalleled scrutiny of private companies. .
Regulators believe that submitting third-party information security companies, ideally state-sponsored, to handle and monitor IPO-hopeful data could effectively limit their ability to transmit Chinese terrestrial data abroad, said one person.
It would alleviate Beijing's growing concern that a foreign listing could force such Chinese companies to hand over some of their data to foreign entities and undermine national security, the person added.
The plan is one of several proposals being considered by Chinese regulators as Beijing has tightened its grip on the country's internet platforms in recent months, including to try to sharpen the scrutiny of overseas lists.
The crackdown, which has crushed stocks and poorly developed investor sentiment, has particularly targeted unfair competition and Internet companies' handling of a huge cache of consumer data, after years of a more laissez-faire approach.
A final decision on the listing of listed companies' data management plan has not yet been made, said the sources, who declined to be identified due to the sensitivity of the matter.
Regulators have discussed the plan with capital market players, said one source, as part of measures to strengthen oversight of all Chinese companies listed offshore.
IPO advisers hope that a formal framework for the data transfer issue can be delivered in September, the source says.
China Securities Regulatory Commission and Cyberspace Chinese Administration did not respond to faxed requests for comment.
Chinese regulators have recently put companies' foreign listing plans, particularly in the United States, on hold pending new data security rules.
Last month, the CAC proposed draft rules requiring companies with more than 1
The US Securities and Exchange Commission, which oversees US listings, did not immediately respond to a request for comment.
Beijing's data management plan comes as US decision – makers raise concerns that Chinese companies are violating US rules requiring public companies to disclose to investors a range of potential risks to their financial performance.
"This is further proof that private companies do not actually exist in the People's Republic of China – they are all under the control of the Chinese Communist Party," said Representative Michael McCaul, the top Republican in the House Foreign Affairs Committee, in a statement.
"Every business doing business in China must respond to the CCP, threatening investor transparency, consumer integrity and national security," he added. According to Dealogic, nearly double the $ 6.6 billion raised over the same period last year.
Plans to increase oversight of Chinese companies listed abroad came days after Beijing launched a cyber security investigation into passenger giant Didi Global Inc. in the heels of its $ 4.4 billion IPO.
Didi is now in talks with state-owned Westone Information Industry Inc. to manage its data management and monitoring, Reuters reported earlier this month.
Under the plan discussed Westone could access Didi's servers across the country to track its data collection, use and transmissions – which could effectively a prohibit the company's tasks from falling into the hands of a foreign entity, according to the report.
Didi at the time had said that media reports of the transfer of control over data were untrue.
The restrictions proposed on Didi could become a possible template for other computer-rich Chinese companies that want to go public in the United States, said one of the people.
Beijing's growing sensitivity to the collection and use of data on land comes when the Supreme Legislature on Friday passed a new law aimed at protecting user data online. It will implement the policy from November 1
In September, China will also implement its Data Security Act, which requires companies that process "critical data" to make risk assessments and submit reports to authorities.
In recent years, the government has increasingly seen user data as the key to the country's financial and social stability and driven technology giants including Ant Group, Tencent and JD.com to share consumer lending data to prevent surplus borrowing and fraud, Reuters reported in January.  Ant is also winding up its consumer credit data, as part of its business to revive its sale of public shares.