Didi Becomes the Newest Victim of China’s Tech Crackdown

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On June 30th, China’s largest ride-hailing company, Didi, began trading at $14.00 per share on the NYSE, for a valuation of $68 billion. In its IPO, the company raised $4.4 billion, making it the second largest IPO by a Chinese company on an American exchange. Didi’s listing on the NYSE came in tandem with the easing of lockdown measures and increased vaccination rates in North America. This has escalated the demand for ride-hailing services and brightened the future for such apps after the industry withstood substantial losses during the COVID-19 pandemic. 

Despite the company’s positive outlook, share prices dropped 22% before the closing bell on July 6th after Chinese regulators banned Didi from app stores in the country. China’s Internet regulator, the Cyberspace Administration of China (CAC), rushed to ban the application after claiming that it posed a cybersecurity risk to users through the illegal collection of personal information. Over the course of the week, Chinese regulators continued to crack down by removing 25 other applications operated by Didi and banning other platforms from delivering Didi-linked services. The company responded by saying that it will cooperate with the authorities, and they assured users of their data security. 

Share prices dropped 22% before the closing bell on July 6th after Chinese regulators banned Didi from app stores in the country.

In the midst of the chaos, the company also faced backlash from its investors. Angered by the news and after hearing reports that said how Chinese authorities had cautioned Didi for months against moving forward with its US IPO before addressing its data and network security concerns at home, shareholders in the US have since filed lawsuits against the company. Fearing that regulation might undermine their profitability, investor attitudes have shifted against Didi and other Chinese companies. If these sentiments continue, they pose a new risk to Chinese companies, since listing on foreign exchanges will become more difficult, thus decreasing access to international capital markets.

Didi relies heavily on their home market, where they have 377 million users in China alone. Chinese customers accounted for more than 90% of Q1 revenue this year. Although the ban has no effect on users that previously owned the app, Didi’s ability to expand within their home market has been significantly hindered by the latest regulatory intervention. With China’s ride-hailing giant injured, competitors have started marketing campaigns in an attempt to steal market share while Didi remains under investigation. Meituan, a food delivery company, has just re-launched its ride-hailing app that failed in 2019, and Cao Cao, a direct competitor of Didi, has begun offering large discounts to new users of its app to take advantage of the situation. T3, another ride-hailing company backed by technology giants Tencent and Alibaba, has also developed plans to expand into 15 new cities and has been marketing significantly on the messaging app WeChat, which has over one billion users. 

Didi’s ability to expand within their home market has been significantly hindered by the latest regulatory intervention.

To compete effectively against the likes of Uber and Lyft in foreign markets, Didi heavily depends on the revenue it generates in China. However, with Didi’s market share now under siege, and their ability to operate at home in question, their ability to compete abroad will be undermined until regulators are dealt with and all data security concerns are resolved. 

Over the last year, Chinese technology companies have been the regulatory target of the CAC in a struggle for data protection. Increased scrutiny in the form of antitrust probes, fines, and data privacy “problem-fixes” have affected many companies’ ability to operate smoothly. Last November, Ant Group, one of China’s largest financial technology companies, succumbed to regulatory pressures and suspended its planned IPO. Furthermore, last month, another thirty-four tech companies, including TikTok’s parent company, were ordered to submit self-examinations regarding data safety. Regulation is not only impacting local companies: in Hong Kong, the introduction of a new doxxing bill could see Facebook, Twitter and Google stop providing services in the city. 

Increased scrutiny in the form of antitrust probes, fines, and data privacy ‘problem-fixes’ have affected many companies’ ability to operate smoothly.

As internet regulations tighten in China, the success of tech companies in the region remains shrouded in mystery. With regulatory threats to revenue and growth, Chinese companies will be disadvantaged against international competition. Their vulnerability to crackdowns might also dissuade investors, which will elevate the risks of IPOs and make access to foreign capital harder. Didi marks yet another casualty in China’s battle for tech supremacy, and it serves as a reminder of the struggles that companies face when navigating regulatory landscapes.

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