FX.co ★ China to tighten its grip on tech startups

Chinese businesses continue to experience difficulties owing to undue attention from all sides. On the one hand, Western countries led by the United States are ramping up pressure on China's firms. On the other hand, Chinese leader Xi Jinping keeps reining in "disorderly" private enterprises.

As part of its sweeping crackdown on local businesses, China’s government is planning to ban technology startups from raising foreign funding and make it harder for them to go public on foreign stock markets. The new restrictions will affect companies from a blacklist that is set to be published at the end of the year. According to preliminary data, it will include startups using the so-called VIE structure — such as those involving the use of data or those that could pose a threat to the country’s national security. VIE refers to a legal business structure in which an investor has a controlling interest but does not have a majority of voting rights. It is used by some Chinese companies such as Alibaba and Tencent to circumvent domestic restrictions on foreign investments. The new initiative of the authorities is expected to deprive them of such an opportunity.

Earlier, Chinese regulators requested the management of taxi service DiDi to develop a plan to delist from the New York Stock Exchange due to concerns over leakage of sensitive information. As a result, the company surrendered to the government’s pressure and announced its withdrawal from the stock exchange.