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 Provides Tax Incentives on Special Equipment for Green and Digital Development
China has introduced a new tax incentive for companies investing in digital and smart upgrades of special equipment to encourage environmental protection and safe production. Companies can enjoy a 10 percent deduction from their corporate income tax payable. Eligibility and requirements are outlined by the Ministry of Finance and State Tax Administration.
A new China tax incentive aims to encourage companies to invest in digital and smart upgrades of special equipment. Companies upgrading certain equipment that aids environmental protection and safe production can enjoy a deduction of the investment at a rate of 10 percent from their corporate income tax payable. We explain the requirements of the new tax incentive.
China’s Ministry of Finance (MOF) and State Tax Administration (STA) have issued a new preferential corporate income tax (CIT) incentive for companies investing in digital and intelligent transformations of certain types of equipment. To be eligible for the incentive, companies must invest in the digital and intelligent transformation of equipment related to energy and water conservation, environmental protection, and safe production.
The new tax incentive aligns with a State Council Action Plan, released in March 2024, which aims to accelerate the renewal of large-scale equipment and consumer goods, promoting high-quality development and driving investment and consumption for long-term benefits.
If the annual CIT payable is insufficient for the offset, it can be carried forward to future years for up to five years.
The CIT payable refers to the balance after multiplying the annual taxable income by the applicable tax rate and deducting the tax reductions and exemptions according to China’s CIT Law and relevant preferential policies.
Note that companies enjoying the tax incentives must use the transformed equipment themselves. If the equipment is transferred or leased within five tax years after the transformation is completed, the incentives must stop from the month the equipment is no longer in use, and the previously offset CIT must be repaid.
The “special equipment” eligible for the preferential tax treatment covers equipment purchased and used by companies listed in the Catalog of Special Equipment for Safe Production for Corporate Income Tax Incentives (2018 Edition) and the Catalog of Special Equipment for Energy Saving, Water Conservation, and Environmental Protection for Corporate Income Tax Incentives (2017 Edition).
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
Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
The 2024 Hainan Encouraged Catalogue, issued by the NDRC, MOF, and STA, aims to boost industries in the Hainan Free Trade Port. It prioritizes sectors like tourism, modern services, and high technologies, offering incentives for foreign investment and market access expansion since 2020. The Catalogue includes 176 entries across 14 categories, with 33 new additions focusing on cultural tourism, new energy, medicine and health, aviation, aerospace, and environmental protection.
The National Development and Reform Commission (NDRC), in collaboration with the Ministry of Finance (MOF) and the State Taxation Administration (STA), has issued the Catalogue of Industries Encouraged to Develop in Hainan Free Trade Port (2024 Version), hereinafter referred to as the “2024 Hainan Encouraged Catalogue.” The updated Catalogue took effect on March 1, 2024, replacing the previous 2020 Edition.
Beyond the industries already addressed in existing national catalogues, the new entries in the 2024 Hainan Encouraged Catalogue are based on practical implementation experiences and the specific needs within Hainan, prioritizing sectors such as tourism, modern services, and high technologies.
The Hainan FTP has been providing incentives to draw investors to invest and establish businesses in the region, especially foreign investment. Alongside a phased approach to opening the capital account and facilitating free capital movement, Hainan has significantly expanded market access for foreign enterprises since 2020, particularly in sectors such as telecommunications, tourism, and education.
The Hainan Encouraged Catalogue comprises two main sections:
Similar to the approach adopted by the western regions, foreign-invested enterprises (FIEs) should always implement their production or operations in accordance with the Catalogue of Encouraged Industries for Foreign Investment.
On top of the industries already addressed in existing national catalogues, the 2024 Hainan Encouraged Catalogue encompasses 14 distinct categories and a total of 176 entries especially encouraged in the region, including 33 new additions compared to the 2020 Edition. These new entries predominantly span cultural tourism, new energy, medicine and health, aviation and aerospace, and ecological and environmental protection, among others.
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
Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
China’s standards authority has released draft standards for personal information protection compliance audits, potentially making them mandatory for companies in 2023. The audits will require companies to undergo annual or biennial checks based on the number of people’s information they handle. The draft standards outline the audit process and requirements, seeking public feedback until September 11, 2024.
China’s standards authority has released draft standards for conducting personal information protection compliance audits. Regular compliance audits to ensure compliance with personal information protection regulations may become a requirement for companies in China under draft measures released in 2023. We explain the audit processes and requirements proposed in the draft standards.
The Standardization Administration of China (SAC) has released a set of draft standards for conducting personal information (PI) protection compliance audits. Under draft measures released by the Cyberspace Administration of China (CAC) in August 2023, companies that process the PI of people in China are required to undergo regular compliance audits.
Specifically, companies that process the PI of over one million people must undergo a compliance audit at least once a year, while companies that process the PI of under one million people must carry out an audit at least once every two years.
While the draft measures stipulate the obligations of the auditing body and the audit scope, the draft standards outline the specific audit process, including evidence management and permissions of the audit organization, as well as the professional and ethical requirements of auditors.
The Secretariat of the National Cybersecurity Standardization Technical Committee is soliciting public feedback on the draft standards until September 11, 2024. Public comment on the draft measures released in August last year closed on September 2, 2023, but no updated document has yet been released.
The draft standards outline five stages of the PI protection compliance audit: audit preparation, implementation, reporting, problem rectification, and archiving management.
Auditors are required to accurately document identified security issues in the audit working papers, ensuring that the records are comprehensive, clear, and conclusive, reflecting the audit plan and its execution, as well as all relevant findings and recommendations.
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 Provides Tax Incentives on Special Equipment for Green and Digital Development
- Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
- Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
- A Comprehensive Guide to China’s Expanded 144-Hour Visa-Free Transit Policy at 37 Ports
- Regulatory Changes in China Aim to Boost Service Sector Growth in Six Cities
- Adhering to Updated Registered Capital Regulations in China’s Revised Company Law
