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China’s Cyber Authority to Strengthen Regulation of U.S.-Listed Chinese Companies

China’s President Xi Jinping speaks during a bilateral meeting with then-U.S. President Donald Trump in Palm Beach, Fla., April 7, 2017. (Carlos Barria/Reuters)

An authority established by China’s President Xi Jinping to police the Internet is expanding its domain to regulate U.S.-listed Chinese companies.

Beijing recently announced an initiative to boost interagency oversight of overseas companies, particularly those housed in the United States, and the Cyberspace Administration of China (CAC) has been appointed to preside over it, the Wall Street Journal reported.

Reporting to a central leadership group headed by Jinping, the CAC is one department of a vast Chinese bureaucracy exerting state control over various facets of life and business.

The goal and intention of the agency’s new mandate is to streamline regulation and foster consistent cooperation between regulators. It signals the next phase of Jinping’s program to monitor and restrain China’s private sector and entrepreneurship, especially fintech firms sitting on large troves of digital data and innovation, posing a challenge to coordinated state planning.

In September 2020, the Chinese Community Party (CCP) issued a notice for private companies, reiterating their obligation to serve the regime with their business activity and “continuously enhance the political consensus of private business people under the leadership of the party.”

A new data-security law finished in June, co-led by the cyber watchdog, increased state powers to coerce private enterprises to share information gathered from social-media, e-commerce, lending, and other businesses. The legislation treats company data as something the Chinese government is entitled to, and can request, access, or seize on demand.

The development with the cyber authority comes after a recent Beijing crackdown on tech titans. This week, Chinese regulators ordered Chinese ride-sharing app Didi’s removal from the app store while it investigated its data-collection practices, sending the stock price tumbling less than a week after its initial public offering (IPO).

Chinese government officials warned Didi that it should revisit its network security and postpone going public, but the company did so anyway, likely amid contradicting messages and pressure from investors and other regulators.

Several class-action lawsuits in the U.S. now confront Didi, alleging that the company misguided investors before its IPO. However, in its IPO prospectus, which discloses the risks, opportunities, and financial details ahead of selling shares to the public, Didi gave the explicit disclaimer that regulators could take punitive action against it.

The cyber authority’s new powers are in part supposed to help rectify situations like Didi’s that resulted in confusion and an allegedly unclear directive from the state.

After many years of laissez-faire approach, the CAC’s new role indicates that the Chinese government under Jinping’s leadership is abandoning the hands-off approach in favor of tightened regulation over private enterprise.

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