China to close loophole which allows companies to float on foreign stock markets

China is planning on closing a loophole which at the moment lets tech companies go public on foreign stock exchanges through variable interest entities.

The plan is being brought in to address concerns over data security and comes as part of a draft of new overseas listing rules that are expected to be finalised by the end of the month, Bloomberg reported.

Currently, tech companies using the so-called VIE structure would still be allowed to pursue initial public offerings in Hong Kong, subject to regulatory approval, people familiar with the matter said.

There are fears that the move could revamp shareholders or delist some of the most sensitive firms.

This could decouple China and the US when it comes to sectors like technology.

READ MORE: Alibaba sees stock head for all time low while wins over investors

Once finalised, the move will be one of Beijing’s most aggressive steps to clamp down on overseas listings since  the initial public offering (IPO) of Chinese ride-hailing giant Didi on the New York stock exchange (NYSE), which was allowed to proceed despite regulatory concerns.

Since the floatation, regulators have moved fast to halt the number of firms seeking to float in the US, costing tech firms the chance to raise billions of dollars in funding from Wall Street backers.

The move comes as part of President Xi Jinping’s campaign to slow the growth of China’s Big Tech sector meanwhile also curbing what Beijing has called a “reckless” expansion of private capital.

Huge Chinese firms including Alibaba and Tencent have both used the loophole and listed very successfully on the NYSE.

The news comes as a hammer blow to TikTok’s parent company ByteDance which was contemplating going public outside of mainland China, according to Bloomberg.

It also threatens a lucrative line of business for Wall Street banks, which have contributed to nearly 300 Chinese firms raise approximately $82 billion through first-time share sales in the US over the past 10 years.

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