US Investors Hit by Beijing as Newly Listed DiDi Could Face ‘Unprecedented’ Sanctions

By Emel Akan
Emel Akan
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.
July 25, 2021 Updated: July 25, 2021

Chinese ride-hailing giant DiDi Chuxing has taken investors on a roller coaster ride since it became a target of an “unprecedented” clampdown by Beijing just days after its debut on the New York Stock Exchange.

The company went public on June 30, raising $4.4 billion from global investors in one of the largest U.S. share offerings of the past decade, which valued the company at around $70 billion. Within just 48 hours after its debut, however, the Chinese communist regime went after DiDi, ordering a cybersecurity review of the company.

DiDi’s shares have dropped more than 40 percent since its initial public offering (IPO), which priced the shares at $14. And the news is only getting worse as Beijing is now reportedly weighing serious penalties for the ride-hailing company.

Bloomberg on July 22 reported that Chinese regulators were considering “serious, perhaps unprecedented, penalties,” which include a forced delisting or withdrawal of the company’s shares from the stock exchange.

Beijing might also impose sanctions on DiDi that are greater than the record $2.8 billion antitrust fine swallowed by the Alibaba Group earlier this year, the report said, citing people familiar with the matter. Other potential actions against the company are suspension of certain operations or installing a state-owned investor.

U.S. lawyers are now preparing class-action lawsuits over DiDi’s IPO to recover losses suffered by investors. The company and its executives are accused of making false and misleading statements and failing to disclose material information about communications with the Chinese regulators.

The Wall Street Journal reported on July 5 that China’s cybersecurity watchdog had asked DiDi months before its IPO to postpone the offering and “urged it to conduct a thorough self-examination of its network security.”

Despite the potential penalties, the company decided to forge ahead with its IPO.

The lead underwriters for the company’s share sale—Goldman Sachs, Morgan Stanley, and JPMorgan Chase—have also come under fire. The Bloomberg report revealed that bankers were informed about the discussions with the Chinese regulators and their concerns about DiDi’s data practices.

Despite these concerns, the executives, investors, and bankers “gave the green light” on June 28 to go ahead with the IPO “that would fill the company’s coffers and enrich all of them,” the report said.

DiDi told its bankers to “keep a very low profile” during the IPO. Hence, there was no press conference, no bell ringing, and no celebration during the offering.

Beijing has been vague about its reasons, saying DiDi had illegally collected and used personal data. But even before the listing, the company had already been on Beijing’s radar. The company along with other tech giants was subject to an investigation as to whether it employed monopolistic behavior or unfair competition practices.

In other contexts, the Chinese regime has shown no regard for how personal data are collected or whether a company is a monopoly.

There may be other reasons for Beijing’s behavior, according to Jason Ma, a China expert.

In an interview with NTD News, Ma said the regime doesn’t want domestic companies to be listed in overseas stock markets.

“The Party doesn’t want Chinese companies to head to the U.S. and set off the financial markets there,” he said. “It prefers these companies go listed in Hong Kong stock exchange, which is under the Party’s control.”

DiDi was founded in Beijing in 2012 by former Alibaba manager Cheng Wei. Dubbed “the Uber of China,” the company commands the largest market share in the country.

The company holds crucial user data, according to experts. Because 80 percent of car bookings in China go through DiDi, it can track most of the population’s whereabouts, according to Ma.

For example, DiDi data in 2015 revealed that traffic at the Ministry of State Security was among the busiest. At the time, reports indicated that the ministry was busy working on two issues, investigating stock market malpractice and cracking down on human rights lawyers.

“For the Chinese regime, this data is a state secret,” Ma said.

“If for some reason, this company gives such data to the United States, this is indeed a national security concern for the Chinese regime.”

Li Min, DiDi’s vice president, denied that possibility and called the speculation “malicious rumors.”

“Like most Chinese firms listed overseas, DiDi stores its Chinese user data on Chinese servers, and in no way would we hand the data to the United States,” Li wrote in a Chinese social media post on July 3.

In the first half of this year, 34 companies from the mainland and Hong Kong raised a record $12.4 billion through public offerings in the United States, according to Dealogic data. And Wall Street’s top investment banks earned more than $450 million in fees for assisting these Chinese IPOs.

Even as the U.S. Congress begins to tighten controls on China-based companies listed on U.S. exchanges, these companies continue to seek U.S. capital. Dozens more Chinese firms are planning to go public in the United States this year.

Beijing’s growing crackdown, however, is expected to make it harder for Chinese firms to list on U.S. exchanges going forward.

Emel Akan
Emel Akan
reporter
Emel Akan is White House economic policy reporter in Washington, D.C. Previously she worked in the financial sector as an investment banker at JPMorgan and as a consultant at PwC. She graduated with a master’s degree in business administration from Georgetown University.