Commentary on Political Economy

Wednesday 7 July 2021

Didi listing provides a cautionary tale 

Removal of ride-hailing company from app stores shows risks for investors and businesses alike 

 Just four days after ride-hailing app Didi Chuxing listed its shares for sale in New York, it was removed from China’s app stores as the cyber security regulator flagged risks to control of public data. Shares in Didi, the largest Chinese initial public offering in the US since ecommerce group Alibaba in 2014, plunged in response. Western investors have, once again, found themselves caught in the midst of a battle between Chinese businesses and the state. More transparency is desperately needed, whatever the regulator’s intention. If China wishes to clamp down on US listings, it would be better to issue a clear warning to companies and investors rather than making an example of Didi. On Tuesday it took some steps towards doing so when the State Council announced that it would examine the “information securities responsibilities” of companies listing overseas. The app’s removal followed the announcement of an investigation by the Cyberspace Administration of China into Didi on Friday. The regulator did not explicitly mention the offering in New York, saying the move was to “safeguard national data security and protect national security”. CAC then followed up on Monday by announcing further investigations into online recruiter Boss Zhipin and Full Truck Alliance, which also recently sold shares in the US. Chinese businesses have rushed to sell shares in New York this year, raising a record amount in the first half of 2021. Because of the regulator’s actions, that will be more expensive in future. US investors are concerned that the CAC waited until after they had invested to ensure that Didi could still take their money. The suggestion that the company itself ignored privately expressed objections to the listing is as concerning, for the same reason. Tech and fintech companies that remain at home have also fallen foul of increasingly muscular regulation. The announcement of an investigation into Didi follows a clampdown on payments company Ant Financial, which had its Chinese IPO cancelled at the end of last year. Alibaba has faced similar investigations as the one now launched into Didi — as well as fines — from regulators. All three of Didi, Boss Zhipin and Full Truck Alliance are backed by Tencent, China’s most valuable company, that has previously avoided much of the crackdown. It is understandable that China’s authorities, like their peers in Europe and America, should be concerned about the increasing power and dominance of a handful of large technology companies. There is, however, a trade-off between strict national control over business and unfettered access to international capital. If China is intent on discouraging US listings and keeping companies at home, it should do more to make its own exchanges more attractive. Either way, investors in Chinese companies listing in America should be aware that the decoupling between the US and China is not solely within the gift of the US. Washington may be keen to protect its own tech sector — banning some exports to China — but so is Beijing. For both sides, decoupling will always carry costs. Chinese tech companies listing in the US are likely to face a “China penalty” in future — reducing their ability to raise capital from international investors. Investment banks that handle IPOs will charge higher fees to compensate for the legal and reputational risks they are facing from any sudden change in stance from the Chinese regulators. That may ensure that Chinese tech remains national, as the government wishes, but will also stop it from being as successful.

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