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Chinese Rideshare Giant Didi in Hot Water

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Chinese Rideshare Giant Didi in Hot Water

Just days after a massive IPO, Chinese regulators came down hard on Didi.

Chinese Rideshare Giant Didi in Hot Water
Credit: Depositphotos

After Didi Chuxing Technology Co., a powerhouse Chinese ride-hailing app, launched a massive initial public offering on the New York Stock Exchange, it found itself in hot water with domestic regulators. On July 4, the Cyberspace Administration of China (CAC) announced a ban of the app from all app stores in China, citing serious violations of collection and use of personal data. This decision came swiftly, just two days after the CAC said it was initiating a cybersecurity probe of the firm. This latest review and penalty on Didi adds to the giant’s mounting issues with regulators, from antitrust to data security.

Didi Chuxing has grown into a tech giant since it was first founded in 2012. In 2016, it acquired Uber China, having outcompeted the U.S. firm in the ridesharing space. The company operates everything from taxis and private cars to social ride shares, bike shares, and on-demand delivery services; as well as automobile sales, leasing, financing, maintenance, fleet operation, and electric charging, and joint vehicle development with automakers. In the past five years, the company has invested significantly in fintech in its push to become a leader in artificial intelligence, cloud computing, and smart transportation. The firm’s current operations extend beyond China, offering app-based mobility services across Africa, Asia, Latin America, and Russia.

Earlier this week, Didi cautioned that the app store ban will hurt the firm’s revenue. In a statement, the company said that it will “strive to rectify any problems, improve its risk prevention awareness and technological capabilities, protect users’ privacy and data security, and continue to provide secure and convenient services to its users.” The app’s removal from smartphone stores (including from Apple and China’s Huawei and Xiaomi platforms) means that it can no longer be downloaded in the People’s Republic of China and it will be unable to register new accounts. Still, the existing half-billion users who had downloaded and installed the app ahead of the takedown can continue to use Didi’s services.

Didi made its trading debut in the United States on June 30, raising $4.4 billion, bringing its market valuation to $74.5 billion. (It became the second largest U.S. IPO for a Chinese firm since Alibaba’s in 2014.)  Since then, however, its shares have suffered a blow. Last Friday shares dipped 5 percent upon the news of the CAC opening an investigation; on Tuesday (when U.S. markets reopened after a Monday holiday), Didi’s shares plunged 25 percent.

Among Didi Global Inc’s top shareholders are Japanese multinational SoftBank Group Corp. with 21.5 percent and Uber with 12.8 percent (after it sold its China business to Didi in 2016), both of which experienced drops in their stock value following the crackdown on Didi. Other recently U.S. traded Chinese app-based companies saw their values hit when trading opened as the Chinese watchdog added Full Truck Alliance Co (a truck-hailing app) and Kanzhun Ltd. (an online recruiting app) to the firms under investigation. Full Truck Alliance and Kanzhun’s shares dropped by nearly 20 percent and 9 percent, respectively.

Didi Global Inc is not the only fintech giant of late to brush up against China’s growing regulatory apparatus. IPO plans for Ant Group, a subsidiary of Alibaba, were thwarted last year and regulators opened an antitrust probe. Tech conglomerate Tencent (the parent company of WeChat), and food delivery provider Meituan have also found their way into the web of state crackdowns.

These practices have increasingly blurred the line between public and private industry in China, with the government, and the Communist Party, reasserting its control with the intent to steer industries toward its desired outcomes. This phenomenon has been coined “CCP Inc”. However, it remains unclear the extent to which the bureaucratic politics between regulatory agencies will stifle innovation or whether the state apparatus’s carrot-and-stick policies will win out.