China blocks Didi from app stores days after mega US IPO

Bejing

CHINA'S cyberspace regulator ordered app stores to remove Didi Chuxing, dealing a major blow to the ride-hailing giant that just days ago pulled off one of the largest US initial public offerings of the past decade.

The Cyberspace Administration of China (CAC) announced the ban on Sunday, citing serious violations on Didi Global's collection and usage of personal information, without elaborating. That unusually swift decision came two days after the regulator said that it was starting a cybersecurity review of the company.

That effectively requires the largest app stores in China, operated by the likes of Apple and smartphone makers Huawei Technologies and Xiaomi, to strike Didi from their offerings.

But the current half-billion or so users can continue to order up rides and other services so long as they had downloaded the app before Sunday's order.

The surprise probe and rapid decision by China's powerful Internet regulator piles on the scrutiny of Didi over issues ranging from antitrust to data security.

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The company has been grappling with a broad antitrust probe into Chinese Internet firms with uncertain outcomes for it and peers like major backer Tencent Holdings. It lost as much as 11 per cent of its market value at one point on Friday, after the watchdog revealed its investigation.

More broadly, Beijing has been curbing the growing influence of China's largest Internet corporations, widening an effort to tighten the ownership and handling of troves of information that online powerhouses from Alibaba Group Holding to Tencent and Didi scoop up daily from hundreds of millions of users.

The regulator on Sunday ordered Didi to rectify its problems following legal requirements and national standards, and to take steps to protect the personal information of its users. On Sunday, the company said on its official social media account that it had already halted new user registrations as of July 3 and was now working to rectify its app in accordance with regulatory requirements.

Didi's IPO was led by Goldman Sachs Group, Morgan Stanley and JPMorgan Chase & Co. In all, the ride-hailing firm had appointed 20 advisers to manage the float.

The CAC did not specify last Friday what it will look into. But the timing of its announcements was significant, coming not just on the heels of Didi's IPO but also the Chinese Communist Party's 100th anniversary celebrations in Beijing.

Didi, one of the single largest investments in SoftBank Group's portfolio, defeated Uber Technologies in China in 2016 before embarking on an ambitious international expansion.

It started trading last Wednesday in New York after a US$4.4 billion initial public offering, pulling off the largest debut by a Chinese firm in the US after Alibaba. But Didi had to settle on going public at a far lower market value than previously targeted. It debuted at about US$67 billion, barely up from its last round of funding in 2019, and far short of the most bullish expectations for US$100 billion - a reflection of the regulatory scrutiny that's hounded it ever since a pair of murders in 2018 that founder Cheng Wei has called its "darkest days".

The Beijing-based firm responded to the subsequent crackdown with a fusillade of efforts to improve security across its network. It began to explore new businesses ranging from car repairs to grocery delivery to offset slowing ride-hailing growth.

That served it well during the coronavirus pandemic, when whole cities came to a standstill. The company delivered an US$837 million profit in the March quarter - a rarity among recent high-profile IPOs like Kuaishou Technology.

The latest move against Didi underscores the uncertainty surrounding the Chinese government's crackdown on the Internet sector.

Earlier this year, the State Administration for Market Regulation announced that it was looking into alleged abuses - including forced merchant exclusivity arrangements - at Meituan, also days after China's third-largest Internet company raised US$9.98 billion from a record share placement and convertible bonds sale.

"This is deeply unfair to investors," Brock Silvers, chief investment officer at Hong Kong-based private equity firm Kaiyuan Capital, said last Friday. "And as a crucial matter of market integrity, China's regulators should cease allowing companies to list while under investigation." BLOOMBERG