China’s Crackdown on Didi Is a Reminder That Beijing Is in Charge

In less than a week, China’s leading ride-hailing platform Didi has gone from investor darling with a Megabucks Wall Street debut to become the biggest new target in Beijing’s fast-paced efforts to tame the country’s internet industry.

The newest front in the regulatory lightning bolt is privacy and cybersecurity. Chinese consumers have become increasingly privacy conscious in recent years, and authorities have shown a particular interest in protecting platforms like Didi’s that handle sensitive information such as locations.

But Beijing’s moves against Didi – stopping new user logins and then ordering them from app stores within two days – are both speedy and the fact that they come so soon after the company went public last week. They send a strong message to Chinese companies of government authority over them, even if they operate globally and trade their stocks overseas. And they remind international investors of Chinese companies of the regulatory curves they can sometimes face.

Without wasting time, China’s internet regulator announced Monday morning that it would suspend user registrations for three more Chinese apps – also to allow officials to conduct cybersecurity reviews. The two companies behind these apps recently listed stocks in the US.

Privacy concerns are growing on both sides of the Pacific as relations between China and the United States have deteriorated in recent years. As the two powers struggle for economic, military and technological advantages, they have tried to ensure that their companies’ digital information does not end up in the other’s hands when doing cross-border deals.

Beijing has not clarified what specific security and privacy issues – either past or potential – prompted regulators to take action against Didi. But under Chinese law, cybersecurity reviews are a national security concern, which officials didn’t fail to do when they announced their review of Didi on Friday.

Tensions with the United States likely caused Chinese officials to pay special attention to Didi and its New York IPO, said Angela Zhang, director of the Center for Chinese Law at the University of Hong Kong. During this period of antagonism, selling stocks in the United States in Beijing inevitably raised concerns about how well Didi’s Chinese data is protected, Professor Zhang said.

Another factor is the increasing nationalism among Chinese internet users. After Chinese regulators stopped registering new users last weekend, Didi tried to dispel rumors that it had turned over data to the United States as a result of its listing.

“This sometimes puts pressure on the regulatory authorities to act and also gives them legitimacy to act,” said Professor Zhang.

Aside from Didi, the two companies whose platforms are currently undergoing cybersecurity reviews are Full Truck Alliance, whose apps connect freight customers and truckers, and Kanzhun, which runs a job search platform called Boss Zhipin.

The rallying stock market in the US has brought numerous other Chinese companies public in recent months, including the food app Dingdong and the question-and-answer site Zhihu. But Didi is by far the most prominent.

With 377 million active users per year in China and services in 16 other countries, the company has been hailed as a domestic technology champion in China, especially after defeating Uber and buying its rival’s Chinese stores in 2016. A representative for Didi declined to comment on regulatory issues on Monday.

China’s crackdown on the country’s internet titans picked up pace last year after the foiled IPO of Ant Group, the fintech giant and Alibaba sister company. Like Didi, Ant had been publicly listed in China despite a history of regulatory concerns when Ant had prepared for a listing in Shanghai and Hong Kong, not New York.

Since then, Didi has hardly escaped the tightened control of the Internet industry, which was preparing for the IPO. At the end of March, market regulators in the southern megacity of Guangzhou called on them and nine other travel and delivery companies to compete fairly and not use consumers’ personal information to charge them higher prices.

The following month, Didi was one of nearly three dozen Chinese internet companies dragged before regulators and ordered to comply with antimonopoly rules. Then, in May, the traffic inspectorates met with Didi and other platforms, asking them to ensure fairness and transparency regarding prices and incomes of drivers.

Didi filed preliminary IPO papers with the Securities and Exchange Commission on June 10th. The rest of the listing process was completed in a flash, and Didi shares began trading on the New York Stock Exchange on Wednesday.

But two days later, China’s internet regulator announced that Didi would not be allowed to register new users while authorities were conducting a cybersecurity clearance. The government’s rules for such reviews, enacted last year, are part of China’s framework for controlling security risks associated with the products and services that large technology companies use.

The next day, a Didi manager wrote on the Weibo social platform that he had seen rumors that the company would have to transfer user data to the United States due to its IPO in New York. The executive said Didi kept all of his Chinese data on servers in China and that the company reserves the right to sue anyone who says otherwise.

The news was republished 16 minutes later on Didi’s official Weibo account with the comment: “We hope everyone avoids spreading rumors and believing!”

On Sunday evening, the Internet regulator released another concise statement in which it ordered Didi’s app because of unspecified problems related to the collection of user data from mobile stores in China.

This is not the first time an app has been removed from mobile stores under pressure from the Chinese authorities, although in many cases the apps were later restored.

In 2018, two popular video platforms, Kuaishou and Huoshan, disappeared from app stores after a state broadcaster accused them of glorifying underage pregnancy. Huoshan is operated by TikTok’s parent company, ByteDance.

The following week, a ByteDance humor app, Neihan Duanzi, was taken completely offline for vulgar content cited by regulators. Not only did the app disappear from stores, it also stopped working for people who already had it on their phones.

When Didi’s hardship was discussed on the Chinese Internet on Monday, an article was circulated that was originally published by state news media in 2015. The article used detailed data from Didi’s research department to analyze the number of trips made by several government agencies during the day to draw conclusions about the amount of overtime workers in those departments were working on.

The comment that was added to the beginning of the article on Monday: “Back then, nobody thought that Didis Big Data could cause a big stir today.”

Albee Zhang contributed to the research.

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