China’s ride-hailing giant Didi Chuxing said that its revenue will face an adverse impact after it was removed from Chinese app stores for violating data privacy and cybersecurity laws. Beijing’s move comes mere days after the company debuted on the New York Stock Exchange (NYSE) and is part of an ongoing pushback against big tech companies, especially those listed in the US.
The Cyberspace Administration of China (CAC) ordered app stores to stop offering Didi’s app on Sunday, citing illegal collection of users’ personal data. The removal does not affect existing users, but it prevents China’s largest ride-hailing platform from adding new users.
In a statement, the CAC said that “after checks and verification, the Didi Chuxing app was found to be in serious violation of regulations in its collection and use of personal information.”
“The company 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,” Didi said in a statement.
The CAC announced on Monday that it would also launch investigations into online recruiter Zhiping.com and truck-hailing app Full Truck Alliance — known in China as Manbang — which are both also listed in the US.
Upon the CAC’s announcement that it had launched a probe into the ride-hailing app, Didi’s shares dropped 5.3% just a few days after it began trading publicly.
Didi made its NYSE debut on Wednesday in an initial public offering (IPO), raising $4.4bn. The company was subsequently valued at $67.5bn, which was well down from the $100bn it had hoped for. Nevertheless, Didi’s IPO was the biggest listing of a Chinese company in the US since Alibaba’s 2014 IPO that saw the ecommerce giant raise $25bn.
China wants tech companies to ‘come home’
Following Didi’s removal, China’s internet watchdog said that it was also investigating other apps, including Full Truck Alliance and Zhipin.com, citing suspected violations of China’s national security and cybersecurity laws. Like Didi, both apps are not allowed to register new users while under investigation.
The three tech groups are industry leaders in China and are all backed by the tech titan Tencent. Another crucial point that all three apps have in common is that they are all listed in the US.
“What’s happening at base is that Beijing is moving to punish companies that have listed overseas, notably in the US, and have large foreign shareholders. It’s a move that could boomerang,” explains Michael Orme, GlobalData analyst and China specialist.
China’s tough stance towards domestic tech companies listed in the US comes amid the country’s ongoing trade war with Washington. As a result, Beijing is trying to stop Chinese companies from listing, especially in New York, or to get them to delist.
“The regulator claims that actions like Didi’s lead to leakages of Chinese data to hostile powers,” Orme said. “It all underlines the deep-set and rising power of the Chinese Communist Party (CCP) over the economy and the extent to which this increasingly centralised regime under attack by weaponised US chip IP, is prepared to undermine the growth of its tech sector for the sake of ‘national security.’”
In addition, Chinese regulators are making moves to rein in the country’s big tech companies. Recently, household names including Tencent, Baidu and ByteDance were among the dozen companies hit with fines by Beijing. Most notably, last November saw Chinese regulators torpedo the hotly anticipated IPO of fintech giant Ant Group at the eleventh hour.
Following the CAC’s announcement, other Chinese tech stocks, led by ecommerce giant Alibaba, took a hit. This may foreshadow Alibaba being forced to delist in the US, which raises the subsequent question of whether listing in Hong Kong will prove lucrative.
However, given the cutthroat tech race Beijing finds itself in, it will avoid seriously hampering the ability of China’s tech giants to support Chinese tech startups and boost their own R&D, which is a major factor in realising China’s 14th Five Year Plan.
“Alibaba, Baidu, Tencent, Didi etc., are not going to fold up their tents over almost whatever Beijing does, or pull the plug on their R&D for which they’ll get state subsidies anyway,” Orme added.