China’s Internet giants want to get approval for investment, fundraising

HONG KONG v. BEIJING (Reuters) – China’s cyberspace regulator has written new guidelines for major Internet companies in the country to get their approval before investing or raising funds, sources familiar with the matter said on Wednesday.

The requirements proposed by the Chinese Cyberspace Administration () apply to all platform companies with more than 100 million users or more than 10 billion yuan ($ 1.58 trillion) in revenue, they said.

Any Internet company involved in the negatively designated sectors issued by the China National Development and Reform Commission (NDRC) last year will also have to seek approval, sources said.

Some internet companies have already reported that they have added changes to the draft rules.

Sources declined to identify the information because it was not yet public. The CAC did not immediately respond to Reuters’ request for comment.

The proposed rules would increase the oversight of China’s increasingly stringent regulators, who have held on to free internet giants in the past year to start making deals and managing user data.

It was not immediately clear what kind of investment or revenue it could raise. A senior executive in the technology industry said there were concerns about whether it would be applied to private market investments, such as pre-IPO funding rounds.

China has constantly updated the negative list of foreign investment bans, such as in compulsory education institutions, news organizations and rare earth minerals. At the end of last year, the NDRC asked companies in such sectors to obtain regulatory approvals before listing their shares outside the continent.

Chen Weiheng, Wilson Sonsini’s partner and chief practice officer at the US Law Firm, said the CAC’s “internal practice guidelines” could have a profound effect on the Internet investment landscape and end the era of building large Internet platform operators. they can do it “. an ecosystem through investment. ”

“Development seems to be driven by concerns about continued reliance on the Internet space and the need to oversee the investment activities of large listed Internet companies.

Chinese technology giants, for example Alibaba (NYSE 🙂 Group, Tencent Holdings (OTC :), Meituan and ByteDance have created great empires over the years by buying or investing in smaller players, practices that Chinese regulators now consider monopolistic and unfair to their users.

Some of these companies have suffered a number of penalties in the past year, including fines for failing to report past agreements and monopolistic behavior. As of Feb. 15, China will also require companies with data on more than one million users to conduct a security review before listing their shares abroad.

Tencent was the third most active investor in Asia in the fourth quarter, investing in 39 companies, behind Sequoia Capital China and Hillhouse Capital Group, according to CBInsights. Xiaomi (OTC 🙂 invested in 31 companies in the fourth quarter.

China’s risk finance was $ 90.1 trillion in 2021, up 52% ​​year-on-year, according to data.

A private equity investor who refused to identify himself said the draft rules could slow down large Internet companies ’investments, leaving more room for smaller, independent companies to survive and grow.

It could also have an impact on ratings because these giant companies were so sensitive in terms of ratings, but about gaining a strategic advantage over competitors, he said.

“With the gradual departure of these strategic investors, there will be less competition in the industry.”

($ 1 = 6.3483)