As an interesting footnote, the reason that Megvii disclosed this is that even though they are, in reality, a Beijing HQ company with founders from Tsinghua (the top PRC university that, e.g., Xi Jinping attended), Megvii, like Alibaba, is structured with a holding company based in the Cayman Islands. So theoretically, the 'prohibition' against foreign companies could be applied to them, though, as they explain, at great lengths, this is unlikely to be the case.
The original / core operating company is:
As they explain in the IPO document, they created a Cayman Islands holding company later on:
To attract foreign investors to support our growing business, we incorporated our Company as an exempted company with limited liability in the Cayman Islands on January 30, 2013 as the holding company of our Group and exercised control over Beijing Kuangshi through the Original Contractual Arrangements
But that company does not directly own the PRC company, it has only a "Contractual Arrangements" with the PRC operating business, as they note:
we do not directly own any equity interest in our Consolidated Affiliated Entities.
The reason for this is that the PRC blocks foreign ownership, as they explain:
The PRC government imposes certain restrictions or prohibitions on foreign ownership of companies that engage in certain value-added telecommunications services
The company adds that while it does not have any equity interest, it has a contract that will allow it to receive economic benefits of the PRC operating company:
Although we do not have any equity interest in our Consolidated Affiliated Entities, we are able to exercise effective control over them and receive substantially all of the economic benefits of their operations through the Contractual Arrangements with Beijing Kuangshi and its shareholders.
Though they acknowledge that the PRC could change this in the future:
we have been advised by our PRC Legal Advisor that there can be no assurance that the PRC government authorities will not take a view in the future that is contrary to or otherwise different from the opinion of our PRC Legal Advisor stated above, and there is also the possibility that the PRC government authorities may adopt new laws and regulations in the future which may invalidate the Contractual Arrangements
That is business in the PRC.
On the plus side, these technicalities have resulted in Megvii disclosing something very important (that "Foreign-owned entities are prohibited or disadvantaged") that PRC companies tend to ignore or hide.