China’s crackdown on Didi is the latest strike to rein in tech

5 Jul 2021

Image: © piter2121/Stock.adobe.com

Days after a successful IPO in New York, Chinese ride-hailing firm Didi drew the ire of regulators back home.

In a matter of days, Didi Chuxing went from dizzying highs to cavernous lows.

The Chinese ride-hailing app, often referred to as just Didi, went public on the New York Stock Exchange last Wednesday. By Sunday, Chinese regulators ordered that the app be removed from app stores.

On Sunday (4 July), the Cyberspace Administration of China (CAC) said the company was illegally collecting user data and was in “serious violation of regulations in its collection and use of personal information”. It ordered that the app be taken down.

Some of this data is used to plan journeys, provide traffic updates and to feed insights into Didi’s self-driving car development.

Didi told existing users that the ride-hailing service will not be affected by the actions but said there will be repercussions to its bottom line.

“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 company expects that the app takedown may have an adverse impact on its revenue in China.”

$67.8bn float

This expected hit to revenue couldn’t have come at a worse time.

Just days before the CAC’s actions, Didi made its stock market debut in New York.

The flotation was noteworthy for several reasons, but mostly that it was a Chinese tech giant opting for a US location to list during a fraught time in US-China relations and a time where tech companies are very much in the spotlight.

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Didi ended its first day of trading with a $67.8bn market cap, up from the $62bn it was valued at privately. It raised $4.4bn in fresh funds in the IPO.

This is lower than the valuation Uber obtained in its 2019 IPO, but Uber and Didi have a symbiotic relationship of sorts. After failing to crack the China market, Uber sold its Chinese operations to Didi. In return, it held a 12.8pc stake in the Chinese company, meaning it secured a win through last week’s IPO.

Didi, much like many ride-hailing and taxi apps globally, saw its usage plummet during the coronavirus pandemic. But the company reports that the Chinese market has gradually recovered and in the first quarter of this year it turned a modest profit of $95m on $6.4bn in revenue.

The removal of its app for download and the inability to acquire new users could have a profound effect on its revenue generation, just at a time where its revenue and business model is under scrutiny by investors on the New York Stock Exchange.

Didi may find itself turning attention to international markets more heavily in the interim. While China still makes up the lion’s share of its business, it has made significant steps into the Latin American market and has launched in Russia.

China pressure

China will not be the market it once was for its indigenous tech firms, one way or the other.

Of late, Chinese antitrust and cybersecurity authorities have dialled up the pressure on tech companies. Once these firms operated on a long leash to achieve high growth, but now they are being reined in.

Most notably, the empire of Jack Ma has been in watchdogs’ sights, namely the payments stalwart Ant Group, which had its own IPO in China stalled. Ultimately, the company was restructured at the behest of the government.

This heightened scrutiny doesn’t appear to be easing any time soon.

A day after the CAC’s order against Didi, the authority opened probes into recruiting app Boss Zhipin and subsidiaries of freight platform Full Truck Alliance. Both companies are publicly listed in the US.

Jonathan Keane is a freelance business and technology journalist based in Dublin

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