Didi, China’s leading ride-hailing platform, has gone from investor darling with a multibillion-dollar Wall Street debut to the biggest new target in Beijing’s fast-moving efforts to tame the country’s internet industry in less than a week.
The most recent battleground in the regulatory war is privacy and cybersecurity. In recent years, Chinese consumers have become more privacy conscious, and authorities have taken a special interest in safeguarding platforms that handle sensitive information such as locations, such as Didi’s.
But Beijing’s actions against Didi — halting new user sign-ups and then removing the app from app stores in two days — stand out for their speed and for coming so soon after the company’s IPO last week. They send a clear message to Chinese businesses about the government’s authority over them, even if they operate globally and trade their stock on foreign exchanges. They also serve as a reminder to international investors in Chinese companies of the regulatory curveballs that can occasionally be thrown their way.
Without further ado, China’s internet regulator announced on Monday morning that user registrations on three more Chinese apps would be suspended — again, as with Didi, to allow officials to conduct cybersecurity audits. The two companies behind those apps recently went public in the United States.
As relations between China and the United States have deteriorated in recent years, concerns about data protection have grown on both sides of the Pacific. As the two powers compete for economic, military, and technological advantages, each has sought to ensure that their companies’ digital information does not fall into the hands of the other, even when doing business across borders.
Beijing has not specified what specific security and privacy issues, either past or future, prompted regulators to take action against Didi. However, under Chinese law, cybersecurity reviews are considered a national security issue, which officials made clear when they announced their review of Didi on Friday.
According to Angela Zhang, director of the University of Hong Kong’s Center for Chinese Law, tensions with the United States likely motivated Chinese officials to pay special attention to Didi and its New York I.P.O. During this period of hostility, selling shares in the United States inevitably raised concerns in Beijing about the security of Didi’s troves of Chinese data, according to Professor Zhang.
Another factor, she claims, is the rise of nationalism among Chinese internet users. After Chinese regulators halted new user registrations over the weekend, Didi attempted to dispel rumours that it had handed over data to the US as a result of its listing.
“This also puts pressure on regulators to act and gives them legitimacy to act,” Professor Zhang explained.
Aside from Didi, the two companies whose platforms are now under cybersecurity scrutiny are Full Truck Alliance, whose apps connect freight customers and truck drivers, and Kanzhun, which operates the Boss Zhipin job-searching platform.
The booming stock market in the United States has enticed a slew of Chinese companies to go public there in recent months, including the grocery app Dingdong and the question-and-answer site Zhihu. Didi, on the other hand, is by far the most visible.
With 377 million active users in China and services in 16 other countries, the company has been hailed as a homegrown tech champion in China, particularly after it defeated Uber and purchased its rival’s Chinese operations in 2016. On Monday, a Didi representative declined to comment on regulatory matters.
China’s crackdown on the country’s internet titans accelerated following last year’s thwarted initial public offering (I.P.O.) of Ant Group, the fintech giant and Alibaba sister company. Ant, like Didi, had proceeded with a share listing despite a history of regulatory concerns in China, though Ant had planned to list in Shanghai and Hong Kong rather than New York.
Didi has hardly escaped the increased scrutiny of the internet industry as it prepares to go public since then. Market regulators in the southern megacity of Guangzhou summoned it and nine other companies involved in the travel and delivery business at the end of March and ordered them to compete fairly and not to use consumers’ personal information to charge them higher prices.
Didi was one of nearly three dozen Chinese internet companies hauled before regulators and ordered to follow antimonopoly rules a month later. Then, in May, transportation regulators met with Didi and other platforms to ensure fairness and transparency in pricing and driver earnings.
On June 10, Didi filed preliminary I.P.O. paperwork with the Securities and Exchange Commission. The rest of the listing process was completed in record time, and Didi’s shares began trading on the New York Stock Exchange on Wednesday.
However, two days later, China’s internet regulator announced that Didi would be barred from registering new users while the authorities conducted a cybersecurity audit. The rules for such reviews, enacted by the government last year, are part of China’s framework for controlling security risks associated with the products and services that major tech companies use.
The next day, a Didi executive posted on the social media platform Weibo that he had heard rumours that the company had to turn over user data to the US because it had gone public in New York. According to the executive, Didi stores all of its Chinese data on servers in China, and the company reserves the right to sue anyone who claims otherwise.
Didi’s official Weibo account reposted the message 16 minutes later, with the comment: “We hope everyone avoids spreading and believing rumours!”
On Sunday evening, the internet regulator issued another brief statement, this time ordering Didi’s app to be removed from Chinese mobile stores due to unspecified issues with user data collection.
This is not the first time that an app has been removed from mobile stores due to pressure from Chinese authorities, though in many cases, the apps have been reinstated.
Kuaishou and Huoshan, two popular video platforms, were removed from app stores in 2018 after a state broadcaster accused them of glorifying underage pregnancy. ByteDance, TikTok’s parent company, operates Huoshan.
The following week, a ByteDance humour app, Neihan Duanzi, was completely removed from the market due to what regulators deemed vulgar content. The app did not simply vanish from app stores; it also ceased to function for users who already had it installed on their phones.
On Monday, as Didi’s plight was being discussed on the Chinese internet, one article circulated that had been published by state news media in 2015. The article analysed the number of rides taken from several government departments over the course of a day using detailed data from Didi’s research wing, drawing conclusions about the amount of overtime worked by employees in those departments.
The following comment was added to the top of the article on Monday: “At the time, nobody thought that Didi’s big data could cause such a big uproar today.”