China
Making Chinese IPOs a bit more private
Author: Juan Du, University of Sydney
The responses of Chinese regulators to initial public offerings (IPOs) by the country’s homegrown tech companies have made headlines beyond financial markets. With memories of the paused IPO and anti-trust investigations into Jack Ma’s Ant Group still fresh, regulators launched a series of investigations into Didi Global, China’s biggest ride-hailing company, within days of its IPO in New York on 30 June 2021.
Some media reports about the regulatory actions are skewed towards speculation about the Chinese Communist Party’s tightened grip over the tech giants. But based on public information, the accumulation of user data is a common theme in the investigations into Ant Group and Didi Global.
Like oil giants last century, big tech companies are facing growing challenges from states over their monopoly on user data. Super platforms act as basic infrastructure for the digital economy, enabling everything from the production to the distribution and consumption of digital services. Empowered by data, these platforms offer innovative solutions to digitalising traditional sectors. But they also enjoy higher pricing and bargaining power, hampering market competition, innovation and consumer interests.
In April 2021, Alibaba took a hefty penalty from Chinese regulators in the wake of anti-trust investigations. According to regulators, the company controlled over half of China’s online retail between 2015 and 2019. Since 2015, Alibaba has required merchants to choose between its platform and competitors’, using data and algorithms to implement this ‘pick one from two’ strategy — a violation of Chinese anti-trust law.
Alibaba was also accused of other data-related monopolistic behaviour. Its data-driven solutions, such as tailored search results for customers, make it difficult for merchants to switch platforms without losing their customer base, transaction records and review histories.
National security is also a concern when examining firm behaviour in cross-border exchanges of data. The probe into Didi Global was grounded in China’s National Security and Cybersecurity Laws, under which IPO-related cross-border activities require critical infrastructure operators to first seek evaluation from ad hoc Chinese regulators to pre-empt national security risks.
Two more companies came under scrutiny on the same grounds. Both control the personal data of millions of Chinese users and were recently listed in the US stock market. One of the companies, like Didi, manages large amounts of data on user identification and contact information, flow of vehicles and people and China’s transportation infrastructure.
Chinese regulators made revisions to the Cybersecurity Review Measures days after investigations into Didi. These made it compulsory for operators handling the data of over one million users to register with the cyberspace regulator for safety-related reviews before listing overseas. The cyber security examination will be undertaken by 14 Chinese regulators, and the securities regulator is the latest addition to this mechanism. The revisions referred to the Data Security Law, which will come into effect in September 2021.
The revisions are a typical case of policymaking lagging behind developments in industry. But when it comes to national security, countries often decide that it is better safe than sorry, as evidenced by the escalating screening of foreign investment in critical infrastructure by the United States, Japan, Australia and the European Union.
Didi’s treatment sent a ripple through the tech industry. Some tech companies like Meicai chose to delay their planned overseas IPOs to adjust to the new compliance requirements. Venture capitalists may have second thoughts over regulatory risks when investing in Chinese tech start-ups and see it as a hurdle for cashing in on their initial investments through IPOs. Chinese tech companies may be less favoured after foreign investors were spooked by the consecutive drops of Didi’s share price. Some firms may choose to instead list on the Hong Kong stock exchange.
Despite the chaos, there are some positives. The regulations restrain tech companies from illegal collection and use of data. Since 1 May 2021, companies have been prohibited from collecting data without consent beyond defined basic personal information. Big firms are more careful about monopolistic practices. The rival Chinese super platforms, WeChat and Alipay, are reported to be considering opening their ecosystems to each other and ending some…
China
China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
China’s Ministry of Commerce announced new policy measures on April 19, 2023, to encourage foreign investment in the technology sector. The measures include facilitating bond issuance, improving the investment environment, and simplifying procedures for foreign institutions to access the Chinese market.
On April 19, 2023, China’s Ministry of Commerce (MOFCOM) along with nine other departments announced a new set of policy measures (hereinafter, “new measures”) aimed at encouraging foreign investment in its technology sector.
Among the new measures, China intends to facilitate the issuance of RMB bonds by eligible overseas institutions and encourage both domestic and foreign-invested tech companies to raise funds through bond issuance.
In this article, we offer an overview of the new measures and their broader significance in fostering international investment and driving innovation-driven growth, underscoring China’s efforts to instill confidence among foreign investors.
The new measures contain a total of sixteen points aimed at facilitating foreign investment in China’s technology sector and improving the overall investment environment.
Divided into four main chapters, the new measures address key aspects including:
Firstly, China aims to expedite the approval process for QFII and RQFII, ensuring efficient access to the Chinese market. Moreover, the government promises to simplify procedures, facilitating operational activities and fund management for foreign institutions.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Q1 2024 Brief on Transfer Pricing in Asia
Indonesia’s Ministry of Finance released Regulation No. 172 of 2023 on transfer pricing, consolidating various guidelines. The Directorate General of Taxes focuses on compliance, expanded arm’s length principle, and substance checks. Singapore’s Budget 2024 addresses economic challenges, operational costs, and sustainability, implementing global tax reforms like the Income Inclusion Rule and Domestic Top-up Tax.
Indonesia’s Ministry of Finance (MoF) has released Regulation No. 172 of 2023 (“PMK-172”), which prevails as a unified transfer pricing guideline. PMK-172 consolidates various transfer pricing matters that were previously covered under separate regulations, including the application of the arm’s length principle, transfer pricing documentation requirements, transfer pricing adjustments, Mutual Agreement Procedure (“MAP”), and Advance Pricing Agreements (“APA”).
The Indonesian Directorate General of Taxes (DGT) has continued to focus on compliance with the ex-ante principle, the expanded scope of transactions subject to the arm’s length principle, and the reinforcement of substance checks as part of the preliminary stage, indicating the DGT’s expectation of meticulous and well-supported transfer pricing analyses conducted by taxpayers.
In conclusion, PMK-172 reflects the Indonesian government’s commitment to addressing some of the most controversial transfer pricing issues and promoting clarity and certainty. While it brings new opportunities, it also presents challenges. Taxpayers are strongly advised to evaluate the implications of these new guidelines on their businesses in Indonesia to navigate this transformative regulatory landscape successfully.
In a significant move to bolster economic resilience and sustainability, Singapore’s Deputy Prime Minister and Minister for Finance, Mr. Lawrence Wong, unveiled the ambitious Singapore Budget 2024 on February 16, 2024. Amidst global economic fluctuations and a pressing climate crisis, the Budget strategically addresses the dual challenges of rising operational costs and the imperative for sustainable development, marking a pivotal step towards fortifying Singapore’s position as a competitive and green economy.
In anticipation of global tax reforms, Singapore’s proactive steps to implement the Income Inclusion Rule (IIR) and Domestic Top-up Tax (DTT) under the BEPS 2.0 framework demonstrate a forward-looking approach to ensure tax compliance and fairness. These measures reaffirm Singapore’s commitment to international tax standards while safeguarding its economic interests.
Transfer pricing highlights from the Singapore Budget 2024 include:
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
China has been the world’s largest manufacturer for 14 years, producing one-third of global manufacturing output. In the Emerging Asia Manufacturing Index 2024, China ranks highest among eight emerging countries in the region. Challenges for these countries include global demand disparities affecting industrial output and export orders.
Known as the “World’s Factory”, China has held the title of the world’s largest manufacturer for 14 consecutive years, starting from 2010. Its factories churn out approximately one-third of the global manufacturing output, a testament to its industrial might and capacity.
China’s dominant role as the world’s sole manufacturing power is reaffirmed in Dezan Shira & Associates’ Emerging Asia Manufacturing Index 2024 report (“EAMI 2024”), in which China secures the top spot among eight emerging countries in the Asia-Pacific region. The other seven economies are India, Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Bangladesh.
The EAMI 2024 aims to assess the potential of these eight economies, navigate the risks, and pinpoint specific factors affecting the manufacturing landscape.
In this article, we delve into the key findings of the EAMI 2024 report and navigate China’s advantages and disadvantages in the manufacturing sector, placing them within the Asia-Pacific comparative context.
Emerging Asia countries face various challenges, especially in the current phase of increased volatility, uncertainty, complexity, and ambiguity (VUCA). One notable challenge is the impact of global demand disparities on the manufacturing sector, affecting industrial output and export orders.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
- China Implements New Policies to Boost Foreign Investment in Science and Technology Companies
- Q1 2024 Brief on Transfer Pricing in Asia
- New Report from Dezan Shira & Associates: China Takes the Lead in Emerging Asia Manufacturing Index 2024
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- Guide for Foreign Residents: Obtaining a Certificate of No Criminal Record in China
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