Luckin’s issues could be an injection of caffeine that invigorates more compliance across China tech

Traditionally those outside China may have had the perception that compliance standards in China were patchy, not what they are used to in their home markets, etc. Since the advent of the Cybersecurity Law and a step-change in enforcement action by the PRC’s cyber regulators against website and app operators, tech companies in China have had to drastically improve data management and security systems if they want to stay outside of regulators’ cross-hairs.

In addition, numerous foreign stakeholders that we deal with have been encouraged by, for instance, the new intellectual property protections found in the new Foreign Investment Law launched at the start of the year and the amended Trademark Law released in 2019. The resulting environment for doing business on a more level playing field and in a compliant way is a positive for all.

Now Luckin comes along. The issues that have befallen this China tech giant over the last few weeks highlight an interesting further layer to the Chinese authorities’ desire for further compliance – I totally agree with the commentary in this FT article that dealings of Chinese companies, both home and abroad, will from now be under increased scrutiny.

Just this week we have been talking to clients looking at China tech and data about the recent amendments to the PRC Securities Law. For the first time, this key piece of legislation gives Chinese regulators jurisdiction over certain activities outside the PRC to the extent that these activities may prejudice the legitimate interest of Chinese investors and disrupt the order of local markets. So many significant Chinese tech firms have in the past sought capital overseas and may have not considered in detail how the heightened governance and disclosure requirements might impact core operations in their home market, if their compliance is not up to scratch. While satisfying the PRC regulators’ desire for the right image of Chinese business to be projected abroad, the increased scrutiny powers will also raise the bar again for these listed companies’ domestic compliance practices and, in doing so, will drag other PRC business with them as these other players seek collaborations and funding from the same pool of investors whose expectations will have also been lifted.