LDN - Business

Didi says app takedown may hit revenue, other U.S.-listed Chinese firms probed

[July 05, 2021] By Tony Munroe, Yilei Sun and Scott Murdoch

BEIJING/HONG KONG (Reuters) -Ride-hailing giant Didi Global Inc said a regulatory order that its app be removed from app stores in China could hurt revenue, while other newly U.S.-listed Chinese firms also found themselves the subject of cybersecurity investigations.

Sunday's takedown order from the Cyberspace Administration of China (CAC) comes just two days after the regulator announced an investigation into Didi and less than a week after it made its debut on the New York Stock Exchange.

Didi told Reuters on Monday that it was unaware before the initial public offering (IPO) that the CAC would launch a cybersecurity investigation or order a halt in China to new user registrations and a suspension of app downloads.

The CAC's move also comes amid a widespread regulatory squeeze on Chinese tech firms that began with the scuttling of a $37 billion listing planned by Alibaba fintech affiliate Ant Group late last year.

"Both the Ant IPO cancellation and this action on Didi show that IPOs can be very dangerous in China, shedding light on one's scale and operations that invite regulatory scrutiny," said Martin Chorzempa, senior fellow at the Peterson Institute for International Economics.

Much of China's regulatory blitz has been by its antitrust watchdog and the order against Didi represents one of the CAC's most high-profile actions since its 2014 founding, suggesting a growing emphasis on data security for firms listing in the United States.

On Monday, the CAC also announced cybersecurity investigations into online recruiting company Zhipin.com and truck-hailing companies Huochebang and Yunmanman, which have merged to form Full Truck Alliance. Like Didi, Zhipin.com's owner Kanzhun Ltd and Full Truck Alliance went public in U.S. listings last month.

Full Truck Alliance said it would suspend new user registrations as required by the investigation and will cooperate with the probe. Kanzhun did not immediately respond to a request for comment.

"For a government that is keen to showcase its homegrown champions, one would think that China would want to deal with these issues in a timely and private manner," said Zennon Kapron, head of research and consultant group Kapronasia, referring to the Didi and Ant investigations.

"The fact that this isn't happening is a clear indication that China is looking to use these companies as a warning to other tech firms," Kapron said.

DIDI'S DOLDRUMS

Didi, which has a current market value of some $75 billion, is also the subject of an antitrust probe by China's market regulator, the State Administration for Market Regulation, sources told Reuters last month.

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The logo for Chinese ride-hailing company Didi Global Inc is pictured during the IPO on the New York Stock Exchange (NYSE) floor in New York City, U.S., June 30, 2021. REUTERS/Brendan McDermid

The CAC said it had ordered app stores to stop offering Didi's app after finding that the company had illegally collected users' personal data.

"The Company expects that the app takedown may have an adverse impact on its revenue in China," Didi said in a statement but did not elaborate on the potential extent of the impact.

Analysts have said they do not expect a major hit to earnings as Didi's existing user base in China is large. The removal of the app does not affect existing users.

Didi reported first-quarter revenue of about 42.2 billion yuan ($6.5 billion), more than 90% of which comes from its China mobility division. In addition to its dominant position in China's ride-hailing market, it operates in 15 other countries.

Didi, which collects a vast amount of mobility data for technology research and traffic analysis, also said it will strive to rectify any problems and will protect users' privacy and data security.

The Global Times, a tabloid published by the ruling Chinese Communist Party's official People's Daily newspaper, said on Monday that Didi's apparent "big data analysis" capability could pose risks to users' personal information.

"No internet giant can be allowed to become a super database of Chinese people's personal information that contains more details than the country, and these companies cannot be allowed to use the data however they want," it said in an opinion piece.

In its IPO prospectus, Didi said: "we follow strict procedures in collecting, transmitting, storing and using user data pursuant to our data security and privacy policies."

Major Chinese tech firms, including Tencent Holdings Ltd and Meituan, saw their Hong Kong-listed shares slump, affected both by the action against Didi and the unveiling of new rules by the country's competition watchdog on Friday to combat illegal pricing activities.

SoftBank Group Corp, whose Vision Fund unit holds stakes in both Didi and Full Truck Alliance, saw its shares fall 5% in Tokyo on Monday.

($1 = 6.4721 Chinese yuan)

(Reporting by Tony Munroe, Yilei Sun in Beijing and Scott Murdoch in Hong Kong; Additional reporting by Aakriti Bhalla in Bengaluru and Sam Nussey in Tokyo; Editing by Edwina Gibbs and Alexander Smith)

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