China widens tech probe beyond Didi to Full Truck Alliance, Kanzhun

Hong Kong

CHINA expanded its latest crackdown on the technology industry beyond Didi Global Inc to include two other companies that recently listed in New York, dealing a blow to global investors and tightening the government's grip on sensitive online data.

In a series of announcements that began last Friday and escalated over a holiday weekend in the US, Beijing ordered all three companies to halt new user registrations and told app stores to remove Didi's service from their platforms.

The regulatory onslaught came just days after the ride-hailing giant completed one of the biggest US listings of the past decade and within weeks of debuts by the other targeted companies - Full Truck Alliance Co and Kanzhun Ltd.

Investors responded by dumping Chinese tech stocks in Hong Kong and sending shares of SoftBank Group Corp, a backer of both Didi and Full Truck, to an seven-month low in Tokyo. Didi, which tumbled 5.3 per cent last Friday, could extend losses when trading resumes in the US on Tuesday.

While China watchers have been on high alert for regulatory shocks since Beijing scuttled Jack Ma's IPO of Ant Group Co in November, the move against Didi and its peers adds a new dimension - cybersecurity - to a clampdown that has so far focused on fintech and antitrust issues.

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The Communist Party-backed Global Times said in a Monday column that Didi's data hoard posed a threat to individual privacy as well as national security, particularly since its top two shareholders - SoftBank and Uber Technologies Inc - were foreign.

Beijing's targeting of recent US listings may chill the pipeline of overseas IPOs that've enriched Wall Street and Chinese private firms alike.

That could in turn fuel concerns of an economic decoupling between China and the US, at least in sensitive areas such as technology, as both Xi Jinping and Joe Biden take steps to limit the flow of capital and expertise between the two superpowers.

Helping tech companies sell shares in New York has been a particularly lucrative business for firms such as Goldman Sachs Group Inc and Morgan Stanley, both of which were key underwriters of the Didi IPO.

Among the questions still lingering for global investors, Chinese tech bosses and US regulators: Which companies might enter Beijing's crosshairs next? And in Didi's case, should investors have been given more explicit warnings about China's clampdown before the IPO?

"Didi seems to have rushed up their IPO process, indicating that there might be early signs of upcoming government scrutiny," said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. "The Didi probe, together with the other investigations announced today, show how the tensions between China and the US is spilling over into the capital markets. The incident will suppress Chinese companies' desire to go public in the US."

Didi undoubtedly has the most detailed travel information on individuals among large internet firms and appears to have the ability to conduct "big data analysis" of individual behaviours and habits, the Global Times wrote on Monday.

To protect personal data as well as national security, China must be even stricter in its oversight of Didi's data security, given that it's listed in the US and its two largest shareholders are foreign companies, the newspaper added.

"We must never let any Internet giant control a super database that has more detailed personal information than the state, let alone giving it the right to use the data at will," the Global Times said in the commentary. While it's not clear how Didi illegally collected personal data, companies should gather the least amount of information required for their services, it added.

The probe is part of a wider crackdown on China's largest Internet corporations, as the government seeks to tighten the ownership and handling of the troves of information they gather daily from hundreds of millions of users.

As part of the reviews, the Cyberspace Administration of China ordered Didi, Full Truck's Huochebang and Yunmanman platforms, as well as Kanzhun's Boss Zhipin to halt new registrations, though existing customers can continue to use their services.

On Sunday, Didi said on social media 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. It offered its sincere thanks to authorities for their oversight. In a follow-up statement, Didi said the regulatory move may have "an adverse impact" on its revenue in China.

The investigation comes hot on the heels of Didi's float, which listed on Wednesday in New York after a US$4.4 billion IPO - the largest by a Chinese firm in the US after Alibaba. SoftBank owned roughly 20 per cent of Didi following the listing, while Uber's stake was about 12 per cent, according to an earlier Didi filing. Founder Cheng Wei owned about 6.5 per cent, just ahead of the 6.4 per cent held by Tencent. SoftBank sank 5.4 per cent in Tokyo trading on Monday to the lowest since Dec 8.

Even before the CAC's crackdown, Didi had been under close scrutiny from regulators since a pair of murders in 2018 that its founder Mr Cheng has called the firm's "darkest days". It was among 34 firms told by the antitrust watchdog to conduct self-inspections and rectify abuses, while the transport ministry had ordered ride-hailing companies including Didi to review their practices relating to driver income and pricing.

Full Truck, backed by Tencent, is little changed since it raised US$1.6 billion in a June 21 listing. Kanzhun, also part of Tencent's investment portfolio, has nearly doubled after its US$912 million IPO. Other firms that listed in the US last month as part of a boom in Chinese companies selling shares overseas include grocery services MissFresh Ltd and DingDong Cayman Ltd.

Other tech stocks fell in Hong Kong trading on Monday. Tencent retreated as much as 4.5 per cent, touching its lowest level this year. Alibaba sank more than 3 per cent, while Meituan and Kuaishou Technology, a short video streaming platform that listed in the Asian financial center earlier this year, tumbled more than 7 per cent. BLOOMBERG

READ MORE: Investors may adjust China risk appetite after Didi crackdown