BEIJING: Official threats have scuttled listings and slashed stock prices: Beijing has launched a scathing and highly public attack on some of China’s most well-known IT companies. The travails of Didi Chuxing, the world’s largest ride-hailing company, served as a cautionary lesson for digital heavyweights this week: what goes up can come down… and fast.
Didi’s app was prohibited from stores in its enormous Chinese market only days after a New York IPO that raised US$4.4 billion, causing stock to plummet and investors to file lawsuits.
A day later, two other US-listed Chinese corporations announced similar cybersecurity investigations on their platforms.
Beijing is injuring its own companies, driven by monopoly and data fears, national pride, and the all-powerful Chinese Communist Party’s control reflexes.
Here are some plausible explanations.
CONTROL OF THE PARTY?
At first glance, the goal appears to be to clean up a once-freewheeling environment in which enterprises with large amounts of sensitive user data thrived in a vast home market with minimal regulation.
Beijing has recently toughened up its network security rules while also voicing alarm about excessive data collecting, presumably to safeguard users from exploitation – akin to US concerns about popular Chinese apps.
Analysts, though, believe that deeper factors are at work.
“There’s nothing the Communist Party despises more than things slipping out of their hands,” said Kendra Schaefer of consultant Trivium China.
The goal appears to be to create a control mechanism, with one possible conclusion being a cybersecurity assessment that might allow regulators to halt IPOs.
While Beijing has pushed companies to expand globally, a flurry of internet companies going public in other countries is likely to have drawn regulators’ attention.
“These IPOs are taking place without the necessary regulatory approval,” Schaefer told AFP.
“At least, that’s how Chinese regulators see it.”
LARGE AMOUNTS OF DATA, LARGE PROBLEMS?
As China’s internet firms amass vast amounts of personal data on everything from transportation habits to payments, President Xi Jinping’s government is becoming increasingly concerned about who owns it.
Part of the anxiety derives from the possibility of sensitive data leaking outside the country’s borders.
In an uncommon move, China’s Internet watchdog cited national security as a reason for its recent investigation against Didi, eventually ruling that its collecting of personal data was illegal.
On Tuesday, the company’s stock plummeted 24% after its initial public offering (IPO) was greeted with excitement.
Didi is now being sued by US shareholders for failing to disclose ongoing conversations with Chinese regulators.
The screws have been tightening across China’s tech architecture, with more than 100 apps, including well-known names like ByteDance’s Douyin, being ordered to fix data gathering issues in May.
Alibaba’s finance subsidiary Ant Group had its US$34 billion IPO canceled last year, ahead of an anti-monopoly investigation into the digital juggernaut.
“We saw government intervention in the Ant Group listing before this… it’s really tough to understand why the timing is as it is, but it’s all data-related,” Hong Hao of financial services firm Bocom International said.
RISK AND MONOPOLIES?
Authorities have subsequently broadened their antitrust investigation beyond Alibaba, with top authorities promising to “prevent the disorderly expansion of capital” by limiting monopolies.
Tencent, the Chinese IT behemoth, has been fined for allegedly violating anti-monopoly legislation, while Alibaba was hit with a record US$2.78 billion fine in April.
The e-commerce company had been chastised for requiring merchants to “choose one of two” platforms, forcing them to work with only one platform and not its competitors.
Despite the fact that such violations have long been a part of the industry, companies have since vowed to follow anti-monopoly standards, including not acting unfairly.
WHERE DO WE GO FROM HERE?
The damage isn’t just superficial.
Fang Xingdong, a former entrepreneur and Zhejiang University scholar, said, “Chinese Internet enterprises will officially bid farewell to their stage of barbarian expansion.”
In a statement, he stated that building a “feeling of compliance” will be a key strategy for such businesses in the future.
For the time being, Beijing has promised to tighten oversight of Chinese companies listed abroad and improve control of cross-border data flows.
Bloomberg News said that regulators were intending to change international listing regulations to remove a loophole used by tech titans to attract foreign capital. It did not disclose details, but it was an early indication of action to come.
The amendments would allow authorities to prevent a Chinese business from listing overseas, even if the unit selling the shares is incorporated in another country.
WHO ELSE MIGHT BE AFFECTED?
Given that the regulatory environment is “very turbulent and unstable,” Chinese companies may be better off listing closer to home in the near term, according to Trivium’s Schaefer.
However, she believes that this trend will not continue in the future.
XPeng, a publicly traded electric vehicle startup in the United States, began trading in Hong Kong this week.
Bike-sharing platforms are among the companies involved. According to Bloomberg, Hello and audio provider Ximalaya have put their intentions to list in the United States on hold, while others, such as convenience retailer Bianlifeng, are moving forward. A Hong Kong listing, according to Hong of Bocom International, may protect companies from regulatory demands from Beijing and Washington. “Last year was a major year for many of these US-listed Chinese companies returning to Hong Kong, and I believe the process is actually speeding up this year,” he said./n
