In less than a week, China’s leading ride-hailing platform, Didi, has gone from a darling of investors with a multi-million dollar debut on Wall Street to the biggest new target in its growing push. Beijing’s push to tame the country’s internet industry.
The latest front in the regulatory assault is privacy and cybersecurity. Chinese consumers have become increasingly privacy-conscious in recent years, and authorities are particularly concerned about protection platforms, such as Didi, that handle sensitive information such as location.
But Beijing’s moves against Didi – stopping new user registrations, then placing orders on app stores over a two-day period – stand out both in speed and in the early arrival of the offering. the company’s first publicity last week. They send a clear message to Chinese businesses about the government’s authority over them, even as they operate globally and their shares trade overseas. And they are a reminder to international investors in Chinese companies of the regulatory curves that can sometimes harm them.
Without wasting time, China’s internet regulator announced Monday morning that user subscriptions on three other Chinese apps are being suspended – as well as with Didi, to allow officials to conduct a network security assessment. The two companies behind these apps recently went public in the United States.
Concerns about data protection have grown on both sides of the Pacific as relations between China and the United States have deteriorated in recent years. As the two great powers vie for economic, military and technological advantages, they sought to ensure that their companies’ digital information did not fall into each other’s hands, even as business transacted across borders. border.
Beijing has not made clear what specific security and privacy issues – past or potential – have turned regulators against Didi. But under Chinese law, the cybersecurity assessment is a national security issue, something officials did not emphasize when publishing their assessment of Didi on Friday.
Angela Zhang, director of the China Law Center at the University of Hong Kong, said tensions with the US could push Chinese officials to pay more attention to Didi and its New York IPO. In this time of antagonism, the sale of shares in the United States certainly makes Beijing nervous about how well-protected Didi’s Chinese data warehouse is, Professor Zhang said.
Another factor, she said: rising nationalism among Chinese internet users. Last weekend, after Chinese regulators stopped registering new users, Didi tried to dispel rumors that it had transferred data to the United States as a consequence of the listing.
“That also partly puts pressure on regulators to act, and also gives them legitimacy to act,” Professor Zhang said.
In addition to Didi, the two companies whose platforms are currently under cybersecurity review are Full Truck Alliance, whose app connects freight customers and truck drivers, and Kanzhun, which runs a job-hunting platform called Boss Zhipin.
The surging stock market in the United States has attracted many other Chinese companies, including grocery app Dingdong and question-and-answer website Zhihu, to go public in recent months. But Didi is by far the most outstanding.
With 377 million active users each year in China and services in 16 other countries, the company has been celebrated in China as a homegrown technology champion, especially after beating Uber and acquired its rival’s China operations in 2016. A representative for Didi declined to comment on regulatory matters on Monday.
China’s control of the country’s internet giants began to accelerate after the IPO last year of Ant Group, the fintech giant and Alibaba’s sister company. Like Didi, Ant has gone ahead with the listing despite a history of regulatory concerns in China, although Ant is set to list in Shanghai and Hong Kong, not in New York.
Since then, Didi has barely avoided scrutiny from the internet industry as it prepares to go public. At the end of March, market regulators in the southern megacity of Guangzhou summoned it and nine other companies involved in the travel and delivery business and asked them to compete fairly and not. use consumers’ personal information to charge higher prices.
The following month, Didi was one of nearly three dozen Chinese internet companies sued before regulators and ordered to comply with antitrust rules. Then in May, transportation regulators met with Didi and other platforms and asked them to ensure fairness and transparency when it comes to pricing and driver earnings.
Didi filed a preliminary IPO filing with the Securities and Exchange Commission on June 10. The rest of the listing process was completed at lightning speed, and on Wednesday, Didi’s shares began to start. trading on the New York Stock Exchange.
But two days later, China’s internet regulator announced that Didi would not be allowed to register new users while authorities conducted a cybersecurity review. Government regulations on such reviews, issued last year, are part of China’s framework to control security risks associated with products and services that companies used by large technology companies.
The next day, a Didi executive wrote on the social platform Weibo that he had seen rumors saying that because the company had listed shares in New York, it had to transfer user data to the US. . The CEO said that Didi stored all of its Chinese data on servers in China and that the company reserves the right to sue anyone who says otherwise.
The message was retweeted on Didi’s official Weibo account 16 minutes later, with the comment: “We hope people avoid spreading and believing the rumours!”
On Sunday night, the internet regulator issued another brief statement, which ordered Didi’s app from mobile stores in China because of unspecified issues related to collect user data.
This is not the first time that an app under pressure from the Chinese authorities has been removed from mobile stores, although in many such cases the apps have since been reinstated.
In 2018, two popular video platforms, Kuaishou and Huoshan, disappeared from app stores after a state broadcaster accused them of underage pregnancies. Huoshan is run by TikTok’s parent company, ByteDance.
The following week, a ByteDance humor app, Neihan Duanzi, was taken offline entirely because of what regulators called vulgar content. The app not only disappeared from stores, but stopped working for those who already had it on their phones.
On Monday, when Didi’s trips were being discussed on the Chinese Internet, an article went viral that was originally published by state media in 2015. The article used detailed data. details from Didi’s research team to analyze the number of trips taken from several government agencies over the course of a day, drawing conclusions about the amount of overtime time worked by employees in departments there.
Comment added on Monday at the top of the article: “At the time, no one thought Didi’s big data could cause a big uproar today.”
Albee Zhang Contributing research.