Already, the company that elbowed Uber out of China has been kicked off app stores in the country and warned that it violated laws about data collection. The regulatory pressure has upended its first days as a publicly traded company in New York, with shares plummeting nearly 20% on Tuesday and retreating even more on Wednesday. All told, Didi has shed some $29 billion in market value from its peak.
Didi isn’t the only Chinese company now entering Beijing’s line of fire. Two other businesses that recently listed in New York — truck-hailing company Full Truck Alliance and job listing firm Kanzhun — have been singled out by Chinese regulators as targets of a probe “to prevent national data security risks.” Their stocks have fallen 11% and 12%, respectively, this week.
The focus on Didi and other US-listed Chinese firms indicates that China’s tech crackdown has entered a “new stage,” according to Alex Capri, a Singapore-based research fellow at the Hinrich Foundation.
“Data has become increasingly strategic, particularly as more powerful AI, algorithms and machine learning, combined with state-sponsored cyber activities, become more pervasive,” he said, adding that as computing advances, the “massive treasure trove of data” held by large firms “will become evermore important to state actors.”
This phase of China’s tech crackdown is further defined by the ties these companies have to the United States. While Beijing’s anti-monopoly probes were concentrated on operations largely within China’s borders, it’s hard to ignore how much the government’s latest actions have focused on firms that sought foreign investment.
“China’s concerns over personal data are exacerbated when the data is at risk of being controlled by US interests,” said Brock Silvers, managing director at Hong Kong-based Kaiyuan Capital, who added that it was “no coincidence” that the three companies were investigated immediately after raising capital in the United States.
A ‘zero tolerance’ approach
The Didi probe suggests that regulators are now giving themselves an even broader mandate when it comes to curtailing Big Tech’s power.
On Sunday, the Cyberspace Administration — China’s top internet watchdog — accused Didi of “serious violations of laws and regulations” in its collection and use of personal information and banned Didi from app stores.
Leaders of the ruling Chinese Communist Party then escalated the data security campaign on Tuesday by pledging “zero tolerance” for illegal securities activity at home, and saying that they would more heavily regulate the ability of Chinese firms to list overseas.
The government said it would strictly regulate what kind of information those tech companies send and receive across the nation’s borders, and draft new rules about how to protect sensitive data related to overseas listings.
Growing concerns for data security
Concerns over data security in China — especially when the United States is involved — aren’t new, though they have been gaining traction in recent months.
Chinese state media has also been stressing the need to focus on data security. The Global Times, a hawkish state-run tabloid, published commentary on Sunday urging Beijing to not allow internet companies “to become rule makers for the collection and use of personal information.”
Data protection is also stirring debate on social media in China, where many users are calling for tougher regulations on companies like Didi to safeguard their private data.
“As long as you are using apps, there is almost no privacy,” the person said.
The risks of abandoning US influence
Tensions between Washington and Beijing have also heavily colored the latest round of China’s tech crackdown.
“President [Xi Jinping’s] administration has been sending signals for some time that it would be driving toward becoming more self-reliant and less under the control of major trading partners like the United States,” said Doug Guthrie, a professor and director of China Initiatives at the Arizona State University.
Capri, of the Hinrich Foundation, expected Beijing to “try and limit [Didi’s] interactions with foreign players,” because of the company’s large share of US and Japanese investors.
“Since the blowup with Alibaba over the last year, it is clear that the Chinese government wants to send a very clear message to all tech companies operating in China,” Guthrie said. “If you want to operate safely and securely in China today, you must be an ally of the Chinese government.”
Any company that appears to be going “too global too quickly,” he added, “is going to be pulled back into line.”
Investors already seem to be wary of companies that are still trying to straddle the line between the United States and China. Chinese companies that are listed in both New York and Hong Kong underperformed the broader market in the Asian financial hub on Wednesday. Video-sharing website Bilibili tumbled more than 5%. Its US-listed stock plunged a combined 13% on Tuesday and Wednesday.
“It will become increasingly difficult for Chinese platforms to operate in the world’s liberal democratic markets on the one hand, while also trying to negotiate China’s tightening domestic controls, on the other hand,” Capri said.
Silvers, from Kaiyuan Capital, said that global investors may also find it increasingly risky to even own Chinese tech stocks — a fear that could jeopardize the ability of Chinese firms to access overseas capital.
Didi and the other companies now under investigation “were allowed to list and raise offshore capital only to have regulators open investigations almost immediately afterwards. This is extremely troubling, deeply unfair to investors, and raises serious questions regarding market integrity,” Silvers said.
He said that Beijing could reassure investors by banning companies under investigation from accessing public markets. That way, regulatory surprises would be limited.
“But until that occurs,” he added, “many may dramatically reduce or eliminate allocations for China IPOs.”