Editor’s note (July 6th 2021): This article has been updated since first published.

CHENG WEI, the billionaire founder and chief executive of Didi Global, had scarcely a moment to revel in his firm’s $4.4bn New York listing. Within 48 hours of the initial public offering (IPO), which valued the Chinese ride-hailing giant at around $70bn, cyber-regulators in Beijing spoiled the party. On July 2nd the Cyberspace Administration of China (CAC) said that it had launched an investigation into the company, promptly shaving 5% off its share price.

Two days later the regulator ordered Didi’s mobile app to be pulled from app stores in China, halting any new customers from joining the service (existing users can still hail taxis). The CAC alleges that Didi was illegally collecting and using personal data. Didi said that it would “strive to rectify any problems” but warned of “an adverse impact on its revenue in China”. Predictably, it also adversely affected the company’s market value. When American markets reopened on July 6th, Didi promptly shed more than a fifth of it. It is now worth $22bn less than a week go.

The CAC’s move is the latest escalation in China’s crackdown against big technology firms. Various regulators have announced a flurry of investigations into e-commerce, gaming and online finance companies. Some have resulted in fines. In June the CAC said that 129 companies were being investigated for illegal data collection. On July 5th it told three other companies—Yunmanman and Huochebang, which operate lorry-hailing and cargo apps, and Boss Zhipin, an internet recruitment service—to stop enlisting new users. The trucking services, which merged under the name Full Truck Alliance, and Kanzhun, which owns Boss Zhipin, raised a combined $2.5bn in American flotations just last month.

All told, Chinese firms have raised $15bn in America so far this year. Those investments are now in peril. On July 6th Chinese authorities said that they would tighten rules for companies with foreign listings, or those seeking them. The consequences will be more far-reaching even than the regulators’ shock halting in November of the $37bn IPO of Ant Group, a financial-technology titan, just two days before its shares were due to begin trading in Hong Kong and Shanghai. Back then the suspension in effect punished those with existing stakes in Ant. The firm’s private backers, including Western groups such as Silver Lake and Warburg Pincus, were unable to cash out. Observers noted that things would have been worse had the regulators clamped down on Ant after its IPO.

This is what the CAC decided to do this time. It left new public investors in Didi and the other three recently listed tech darlings, most of whom happen to be Western, badly burnt. The actions will chill enthusiasm for Chinese technology stocks, and not just in America. The day after the Didi ban the four biggest tech groups with listings in Hong Kong and mainland China—Tencent, Alibaba, Meituan and Kuaishou—lost a collective $60bn in market capitalisation. The longer-term effects on some of the world’s most innovative and value-generating companies of the past decade look ever more uncertain. They are unlikely to be positive.

The nine-year-old Didi ranks among China’s top internet groups. Backed by SoftBank, a Japanese tech-investment giant, as well as Tencent, it has fended off rivals including Uber, the American ride-hailing pioneer, whose Chinese business it swallowed up in 2016. Although many analysts wonder whether Uber and other global ride-hailers can ever make a lot of money, few had reasons to doubt Didi’s prospects. These looked bright thanks to China’s numerous, densely populated conurbations. Although the company has global ambitions—it processes an average of 41m transitions each day worldwide, has nearly 500m annual active users, and runs a sizeable operation in Brazil—the bulk of its business remains at home.

The CAC’s investigation is focused on the data Didi is collecting from its 377m China customers. The regulator has given no details about Didi’s supposed data misdeeds, other than to say they broke the law. The company collects a wide range of data on its users and drivers, such as audio and video recordings from each ride. In its prospectus it said that it uses artificial intelligence and facial recognition to monitor these audio and video recordings to check if the driver is fatigued. It noted that it shares personal data with third parties, where allowed.

Data have emerged as a bone of contention between governments and big tech around the world. In China some government agencies are pushing for greater access to the troves of data that companies are collecting. For online payments groups such as Ant, personal financial data are a valuable component in determining creditworthiness. It is also something the government insists should be shared with state banking institutions for the broader good of society. The government’s plans to take control of personal data are expected to touch all of China’s internet giants.

In April Didi was among 30 companies called in by the CAC and the State Administration of Taxation. It was given a month to conduct a sprawling self-inspection. It added a warning that it “cannot assure [investors] that the regulatory authorities will be satisfied with our self-inspection results” to the risks listed in its prospectus, alongside antitrust, pricing, privacy protection, food safety, product quality and taxes. It went ahead with its New York IPO regardless. Punishing the company right after its listing looks like deliberate retaliation for pressing on before the regulators were done with their probing, says Angela Zhang, a regulatory expert at Hong Kong University.

Perhaps in an effort to avoid more personal punishment Chinese tech founders are keeping an ever-lower profile. Jack Ma of Alibaba has virtually disappeared from public life in China since the IPO of Ant, which he also co-founded, was canned (Mr Ma’s wife is believed to have secured a Singaporean passport some years ago). Colin Huang of Pinduoduo, another e-commerce group, stepped down from his chairmanship just as its user numbers overtook Alibaba’s. Wang Xing of Meituan fell silent after posting a 1,000-year-old poem online that could be read as critical of the government. Didi’s Mr Cheng has not made a peep since his ride-hailing app was expelled from app stores. Didi, for its part, said it “sincerely thank[s]” regulators for their actions. Its investors are probably in a less grateful mood.

Source