China denies drafting guidelines on fundraising, investment for internet giants

By Xie Yu and Yingzhi Yang and Zhang Yan and Kane Wu and Selena Li

HONG KONG/BEIJING (Reuters) – China’s cyberspace regulator denied on Wednesday that it was elaborating a document with new guidelines requiring that the country’s large internet companies obtain their approval before carrying out any investment or fundraising.

The denial came after the appearance on the country’s social network of a document detailing the guidelines.

“The Cyberspace Administration of China (CAC) has not issued this document and the information is false,” he said on his official WeChat account, without giving details.

It was not immediately clear whether the denial referred only to the document’s existence or its plans for additional regulation.

Earlier on Wednesday, Reuters reported, citing people familiar with the subject, that the Chinese regulator is drafting new rules that would include the need for approval for investments or funding resources by some companies.

The requirements proposed by the CAC would apply to any platform company with more than 100 million users, or with more than 10 billion yuan ($1.58 billion) in revenue, said the sources.

Any internet companies involved in sectors mentioned in the negative list issued by China’s National Development and Reform Commission (NDRC) last year will also need to apply for approval, the sources said.

The regulator did not respond to a request for comment on the report and could not immediately be reached for further comment on its denial.

Some internet companies have already been informed, said the sources, and the draft rules are still subject to change.

Chen Weiheng, partner and head of US law firm Wilson Sonsini’s Greater China, said the “internal practice guidance” of the CAC, if confirmed, could significantly impact the internet investment landscape and “even end the era of the big operators of internet platforms to build an ecosystem through investments”.

Some companies like Alibaba, Tencent, Meituan and ByteDance have been submitted over the past year to a range of punishments, including fines for failing to report past business and for behavior deemed monopolistic by the government. As of February 15, China will also require companies with data from more than 1 million users to undergo a security review before listing shares abroad.

Tencent was the third investor Asia’s most active in the fourth quarter, with investments in 39 companies, following Sequoia Capital China and Hillhouse Capital, according to data from CBInsights. Xiaomi invested in 31 companies in the fourth quarter.

China’s venture funding totaled $90.1 billion in 2021, up 52% ​​from a year earlier, the data showed.

One private equity investor who declined to be named said the draft rules could cause large internet companies to scale back their investments, leaving more room for smaller, independent startups to survive and thrive.

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