China Makes It Difficult for Local Startups to Get Foreign Funds

The Chinese government is preparing regulations that will strictly limit startups from obtaining foreign funding. It will also be difficult for startup companies to list their initial public offerings or IPOs on foreign exchanges.

State planning, the Ministry of Commerce, securities regulator, and the Central Bank in China are formulating rules for the blacklist. However, it is not clear how wide the scope of this regulation will be.

The Financial Times reported that a source familiar with the matter said the regulation would target startups in sensitive sectors, such as data use or those that have the potential to pose national security concerns.

Two Financial Times sources close to financial regulators also said the blacklist regulation was aimed at ensuring national startups were not dominated by foreign shareholders.

“This is because in the future, it is feared that foreign investors will be able to put money into traditional industries as opposed to technology,” the source was quoted as saying by the Financial Times, Wednesday (8/12).

The Chinese government’s actions are thought to be continued pressure on technology companies such as Alibaba and Tencent.

Has Published 7 New Rules

Beijing has already issued at least seven rules to increase surveillance of tech giants, as follows:

1. New antitrust rules

2. Regulations regarding digital-based microcredit

3. Restricting children from playing online games

4. Tighten content rules in online games to on-demand video (VoD). One of them is banning content that displays feminine-looking men

5. Banning fans from irrationally chasing stars on social media

6. New Data Security Act

7. Redistribution of wealth.

“We will take targeted measures to promote a fair and orderly market environment,” Xiao Yaqing said.

Xiao said the government will continue to hold technology companies accountable, strengthen oversight, and work with other government bodies to manage the technology industry.

A number of Chinese technology giants have also faced fines several times from Chinese authorities as a result of the pressure. Most recently, Alibaba, Tencent and JD.com faced fines of 500,000 yuan (IDR 1.1 billion) from China’s Market Regulatory Agency (SAMR) in November. All three were deemed to have violated anti-monopoly rules.

According to SAMR, a number of technology giants have signed business deals such as mergers and acquisitions since 2012. At least, there are 34 deals made by Alibaba, Baidu, Tencent, JD.Com to Suning.

The deal includes Alibaba’s acquisition of navigation mapping firm AutoNavi Software Holdings Co. In addition, Tencent acquired health platform China Medical Online Co.

But they did not report the deal to the authorities. SAMR considers that the technology company violated antitrust laws.

Several Tech Giants Have Been Fined

Previously, Alibaba and its Tencent subsidiaries, China Literature, and Shenzhen Hive Box Technology, for example, were fined 1.5 million yuan (IDR 3.36 billion) at the end of last year for not reporting the acquisition.

In early March, Beijing again fined Alibaba’s subsidiary in the field of basic necessities or groceries, namely Nice Tuan and Tencent’s Shixianghui. The company is known to implement a community-based purchasing scheme that is considered to be able to trick consumers into buying goods.

On the other hand, Jefferies analyst Thomas Chong said the ongoing pressure for Chinese technology companies brought investors’ concerns. This led to a decline in the share price of Alibaba to Tencent.

The CEO of the Global CIO Office, Gary Dugan, also suspects that this regulatory attack from the government is putting pressure on tech companies like Alibaba and Tencent for a long time. 

Not only that, there will be the addition of more sectors that are the target of Beijing’s pressure. “It’s been a long time for investors to worry about pending change,” said CIO Global Office CEO Gary Dugan in August (13/8).