Nicolas Asfouri / AFP via Getty Images
BEIJING – Chinese ridesharing platform Didi Chuxing has announced that it will withdraw from the New York Stock Exchange and move to the Hong Kong Stock Exchange after coming under Chinese regulatory scrutiny.
The announcement reflects the rapid reversal of the transport company’s fortunes as China undertakes a regulatory blitz targeting some of the country’s largest private tech companies.
âThe rules are really stricter,â said Lester Ross, a partner at Beijing-based law firm WilmerHale. “This reflects real pressure (…) to tighten control over data, which is seen as an integral part of national security.”
In June, Didi landed a much-anticipated initial public offering of $ 4.4 billion on the New York Stock Exchange. Before its listing, 10 times more investors subscribed to buy Didi than there were shares available.
Less than two weeks later, Chinese state regulators under the country’s cyberspace administration announced they were investigating Didi and two smaller transportation platforms for potential national security violations.
China now requires any platform with more than 10 million users like Didi to pass a state security exam with the Cyberspace Administration in order to receive official authorization to register abroad . Didi says it has around 600 million users, theoretically giving the company access to the addresses and travel history of many government employees who use the app – data that may have had to be shared. with US regulators.
The announcement of Didi’s delisting comes just hours after the U.S. Securities and Exchange Commission announced it was passing amendments that would require foreign companies to submit to open book audits if they are listed in United States. The new rules do not explicitly mention China, but the measures are widely seen as an effort to better understand the operations of Chinese companies, which the SEC says it has not been able to audit satisfactorily since 2007.
As a result of the national security investigation, downloads of several Didi apps remain suspended in China and the company cannot register new users or drivers. In July, the company was fined Rmb 11 million ($ 1.73 million) for failing to seek state approval before completing 22 M&A deals.
Just this week, six state regulators announced new common rules that place additional restrictions on ridesharing platforms, including Didi, by setting caps on the fees companies can charge per ride.
It’s still unclear what will happen to the money thousands of private investors – including many mom and pop retail investors – have already spent on Didi’s shares. The value of Didi’s stock has fallen by more than half since its IPO.
Chinese regulators pressure tech companies for data security
Didi’s woes are closely linked to an ongoing regulatory campaign across China that has involved investigations and fines on powerful companies over issues of data security and traditional social values.
Last year, regulators abruptly halted the high-profile stock market listing of Ant Group, a massive financial technology firm founded by charismatic entrepreneur Jack Ma. Ma has not attended a public event since October 2020. The following April, e-commerce and logistics company Alibaba, which Ma also founded, was fined a record $ 2.8 billion for breaking anti-monopoly laws.
Long-discussed data storage and privacy measures also came into effect this year, which impose strict controls on how companies – including foreign ones – store user data in China and what data can be transferred out of the country. country.
Much of the country’s multibillion-dollar online education sector has been wiped out after regulators banned for-profit education companies and drastically cut back on the services they can offer. Once-lucrative sources of income from mobile and video games have also dried up for tech companies after China allowed minors to play no more than three hours per week. Increased censorship checks have silenced A-List celebrities and cut reality TV shows as the ruling Communist Party in China clamps down on what it calls an unhealthy celebrity culture fueled by “distorted values” and ” abnormal aesthetics “.
At the same time, Beijing pushed Chinese companies to enter the domestic market. Earlier this week, Bloomberg announced that regulators were considering banning the variable interest entity, a legal workaround that has allowed tech companies like Alibaba and Tencent to list on foreign exchanges despite Chinese laws. which limit foreign investment in certain sectors.
Instead, China has heavily promoted its Shanghai and Shenzhen trade. In November, China opened a new Beijing Stock Exchange.
âThey don’t think they necessarily have to have access to the New York Stock Exchange or the Nasdaq for their businesses in the tech space to thrive,â said Ross of WilmerHale.