Outlawing DiDi reveals a power struggle within China, unholy alliances between the investors, officials and political elites, China’s financial war with the US, market monopolies, and even national security issues, among others.
Imagine a company losing US$10 billion since its inception and filing for an initial public offering (IPO) on the New York Stock Exchange at a valuation of US$68 billion, the biggest by any Chinese company since Alibaba’s in 2014. The company in question is DiDi Chuxing, China’s top ride-hailing app founded in 2012 by Cheng Wei, a former employee of Alibaba Group’s regional and Alipay’s operations. The company is headquartered in Beijing with 377 million car-riders, 13 million drivers and has around 80% of the market share in China. Japan’s Softbank Group’s Vision Fund is the biggest shareholder with 20.1%, followed by Uber’s 11.9%, Cheng Wei’s 7% and Tencent Holding’s 6.4% shares.
However, two days after its listing on 30 June 2021, the Cyberspace Administration of China (CAC) launched an investigation citing issues related to national data security, and ordered for DiDi’s apps to be removed from app stores in China. The investigation knocked off around US$25 billion within a week and the shareholders are so perturbed that they filed lawsuits accusing DiDi of not disclosing information about its compliance with cybersecurity laws and regulations of China. Why should China crack down on its tech giants in the first place? Is it because of the antitrust investigations? Or is it due to the so-called antimonopoly policies of China as was the case with other tech giants including Alibaba? Or is there something else brewing inside China?
One, it cannot be a case of antitrust and market monopoly alone, for the simple reason that state investors such as Bank of Communication, China Merchant Bank, Poly Capital, China Life, CICC Alpha, CITIC capital, Pingan Insurance, and a dozen more have offered massive credit lines to DiDi. No wonder DiDi raised billions of dollars and forced Uber, the market leader in the segment, to sell its China business to it for US$35 billion in 2016, albeit it was allowed to retain 5.8% shares in DiDi. Though the US-based Uber was kicked out of China with the help of Chinese state and private capital, but it was also the time when antimonopoly investigations were initiated against DiDi. Owing to DiDi’s strong ties with the state apparatus, these investigations made little headway. Moreover, had it been for market monopoly, other state-owned tech giants such as China Mobile, China Telecom, China Unicom and many others would have faced investigations long back.
Two, the faction feud within the Communist Party of China has spilled over onto Wall Street. Liu Qing, a Harvard graduate, CEO of DiDi, is the daughter of Liu Chuanzhi, founder of Lenovo, who is considered to be close to Alibaba’s Jack Ma. The above-mentioned equity capitals that are run by sons and daughters of the princelings have major stakes in DiDi. Boyu Capital is run by Jiang Zemin’s grandson Jiang Zhicheng; Zhu Yunlai, former CEO of the CICC Alpha, is son of Premier Zhu Rongji; Pingan Insurance is managed by the relatives of former Premier Wen Jiabao; Liu Lefei, present chairman of the CITIC capital is son of the former politburo standing committee member Liu Yunshan. Some like Boyu Capital has huge stakes in Alibaba’s Ant Group too. It is believed that irrespective of Xi Jinping gaining control of the People’s Liberation Army, it is the princelings of Jiang faction that hold sway in the big businesses across China, especially in Guangdong province, largest province by GDP in China in 2020 (US$1.7 trillion). It is perhaps owing to the fear of “financial coups” that Xi Jinping is tightening the noose around the Shanghai clique. This is likely to turn the heat on DiDi’s investors, and we should not be surprised if some more “tigers and flies” come a cropper.
Three, wary of strong connections of the Chinese hi-tech companies with the “princelings” and bigwigs of Wall Street, the CPC has come to realize that organs like the Securities Regulatory Commission (SRC) have failed to stop Chinese companies from listing abroad. It has been revealed that China had asked DiDi to put its IPO on hold as the CPC was celebrating its centenary on 1 July, but it appears that the investors were in a hurry and brushed aside the request. The loss of face made Xi Jinping to direct organs such as General Office of the Central Committee of the Communist Party of China and the General Office of the State Council issue “Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law” on 6 July 2021. Section 5, Article 19 particularly deals with strengthening judicial cooperation in cross-border supervision, supervision of China’s concept stocks, and system of extraterritorial application of capital market laws. It talks about improving data security, cross-border data flow, confidential information management and other relevant laws and regulations. It appears that some of the powers of the SRC, the State Administration of Market Regulations (SAMR) will be taken over by the CAC. The likely repercussions will be conscious or unconscious decoupling of China’s “private” enterprises from the US. This conforms to what Renmin University professor, Di Dongsheng has said that it is China that wishes to decouple from the American bubble.
Four, data security has been cited as one of the reasons for punishing DiDi. In 2020, a bill passed by the US Congress and signed into law by Donald Trump stipulates that the audit papers of US-listed Chinese companies must be open for US regulatory inspection; failing to comply with this law will invite delisting. China’s above mentioned telecom giants were delisted earlier this year. According to the Global Times, “this highly unfriendly move, plus Trump’s high-profile assault on Huawei, ZTE and approximately three dozen of Chinese high-tech companies, seriously damaged bilateral ties”. China “hardening its regulations” according to the paper could be attributed to the US posturing. Besides the “Opinions” issues by the CPC Central Committee and the State Council, the Standing Committee of the National People’s Congress has passed a Data Security Law that makes it mandatory for all Chinese companies and entities to acquire government approval before providing any China based data to foreign entities and agencies. China is also working on another law on the protection of personal information. China fears that DiDi could have compromised China’s data security law including some of the very sensitive details about maps and military entities inside China, albeit this has been denied by DiDi.
Finally, it could be discerned that outlawing DiDi is not as simple as it appears. It is far more complex, revealing a power struggle within China, unholy alliances between the investors, officials and political elites, China’s financial war with the US, market monopolies, and even national security issues, among others. In the coming weeks, DiDi’s business operation will come under stricter scrutiny of China’s main antitrust watchdogs, the CAC and the SAMR, as has been the case with China’s other tech giants including Alibaba, Tencent, Baidu, Ant Group, ByteDance Ltd., JD.com Inc. and Pinduoduo Inc. Ant Group’s IPO was blocked and Alibaba was fined US$2.8 billion by SAMR. DiDi’s quantum of punishment is likely to be much harsher, for it will serve a warning to those who are circumventing and undermining the party’s state control.
B.R. Deepak is Professor, Center of Chinese and Southeast Asian Studies, Jawaharlal Nehru University.