Action against Didi: China increases pressure on tech companies

The crackdown on the transport operator Didi shows that the Chinese authorities are targeting tech companies. It is difficult to see through the intentions of the regulators. But the industry is feeling the pressure.

Didi Chuxing raised more than four billion US dollars a week ago in New York – a strong stock market debut. But two days later things happened in quick succession: the authorities in Beijing surprisingly announced that they would be examining the world’s second largest transport operator after Uber for threats to China’s cybersecurity. Then the Didi app flew out of the Chinese app stores. Since then, the share has been on the downside and investors angry.

“A clear signal to the entire industry”

After the Alibaba subsidiary Ant Group’s IPO was canceled at short notice last winter, this is another blow to a large tech company. “Didi alongside Alibaba, Tencent and Baidu – these are the darlings of the Chinese tech industry,” says analyst Zennon Kapron, whose consultancy has offices in Singapore and Shanghai. “The government’s action is a very clear signal to the entire industry. This is probably the beginning of another crackdown against the big tech companies.”

Didi is officially accused of being too lax with customer data. The travel agent is the top dog in China, arranges 20 million journeys every day and has half a billion active users.

The Beijing Group’s mania for collecting data also annoys many Chinese. “If it is true that Didi is disclosing our personal information, then the government is doing the right thing and the company should be punished more severely,” a young man in Shanghai told Reuters. “I hope the government does more to protect our data,” added one woman.

Strengthen control of tech corporations

However, it is not at all clear whether the government is actually concerned with data protection. Rather, the goal seems to be to put a grip on the mighty tech corporations, who were able to act as long as they wanted.

“China can step in much faster than other countries,” says analyst Kapron. “Something like deleting the Didi app from the app stores would probably have taken many weeks in the USA and would have expired publicly – but China does it immediately.”

IPO in the US as a possible problem

It is also speculated whether there is a connection with the IPO in New York – especially since the Chinese authorities have been taking action since the beginning of the week against three other Internet companies whose shares have recently been traded in the United States. Chinese commentators deny any connection. It is not about a campaign of revenge.

But it’s no secret that the Chinese government would rather go public in Shanghai or Hong Kong than in New York. In media reports, it is also said that Didi pushed ahead with his IPO and did not wait for the cybersecurity authorities in Beijing to give the go-ahead. So far, this has not been mandatory. But China’s supervisory authorities wanted to show with their investigation that they are in charge.

In addition, the rules were changed yesterday: China wants to control IPOs abroad more strictly in the future. On the New York Stock Exchange, on the other hand, confidence in Chinese tech corporations has been severely dampened for the time being.