Chinese ADRs Seen Weaker as Regulators Propose Tougher Rules

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By Dhirendra Tripathi – ADRs and stocks of Chinese companies traded weaker as China's cyber regulatory body issued draft rules Wednesday that, if implemented, will mean a heavier compliance burden for apps whose functions are perceived as influencing public opinion.

In an unrelated development, but one which still reflects the tightening of oversight of China’s internet giants, the country’s markets regulator fined units of Alibaba (NYSE:BABA), Tencent Holdings (HK:0700) and Bilibili (NASDAQ:BILI) for failing to properly report about a dozen deals.

The twin developments came at a time when 'long-duration' tech stocks - whose profitability is skewed toward the long tem - are under pressure from the prospect of higher U.S. interest rates. China's tech sector is only partly protected from that process by the fact that its home country's central bank is currently easing monetary policy.

Meituan stock (HK:3690) slumped 11.2% in Hong Kong while Tencent Holdings (OTC:TCEHY) shed 4.3%. Alibaba ADRs traded 1.4% lower in premarket. Pinduoduo (NASDAQ:PDD) and Bilibili were also weaker in premarket, by around 3% each. Didi ADRs (NYSE:DIDI) fell 1.4%.

The public is expected to submit its views on Cyberspace Administration of China’s proposals by January 20.

According to Reuters, proposals suggested by the CAC require application providers to carry out a security assessment before launching "new technologies, new applications, and new functions" capable of influencing public opinion.

The regulator added that app providers must not carry out activities that endanger national security, or force users to share unimportant personal information.

News apps must obtain licenses granting permission to publish news, it said.

On Tuesday, CAC issued new rules that tighten regulation of platform companies with over 1 million users before listing overseas. This norm comes into effect next month.

The new rules are in line with a series of steps the Chinese authorities have undertaken over the last year to protect data on their citizens that they are not comfortable sharing with overseas regulators, such as the U.S. Securities and Exchanges Commission. That concern has resulted in Didi delisting from the NYSE and its various apps having to stop onboarding new customers pending security reviews of their data handling practices.

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