China’s cyberspace regulator recently cracked down on ride-hailing app DiDi over allegations that the company has committed “serious violations of laws and regulations pertaining to the collection of personal information”.
The country’s internet watchdog — the Cyberspace Administration of China (CAC) — ordered DiDi to stop adding new users to the platform, and mobile app stores to remove it’s China app, citing China’s 2017 Cybersecurity Law. The CAC has not publicly specified the violations made by the company.
DiDi Global Inc. is one of the world’s largest ride-hailing apps. The company has operations in 14 other countries and out of its 493 million annual active users, three quarters are in China. A competitive price war between DiDi and Uber in China resulted in DiDi squeezing out the competition and in 2016 the company bought Uber’s operations in China.
Prior to the ban, the Beijing based company raised $4.4 billion in a June 30 initial public offering (IPO) in New York. The company has a market capitalisation of about $74.5 billion.The ban came less than a week after it went public on the New York Stock Exchange in the biggest US share offering by a Chinese company since Alibaba debuted in 2014.
The regulatory pressure led to shares plummeting by nearly 20 percent on July 6. DiDi has lost about $29 billion in market value from its peak, ruining its first days as a publicly traded company in New York. In response, DiDi has said that it would “strive to rectify any problems” and “protect users’ privacy and data security and prevent cybersecurity risks”. The company also said that customers and drivers who have already downloaded the app will not be affected.
China VS Big Tech
The ongoing clampdown by Chinese government on Big Tech is not the first. Yunmanman and Huochebang are China’s two major truck-hailing apps and label themselves as “Uber for trucks”. They merged in 2017 to create a new firm — Full Truck Alliance, which was listed on the New York Stock Exchange last month and is currently valued at $21 billion. Similarly Boss Zhipin, one of China’s largest online job listing platforms that publicly listed in New York last month, has a market cap of nearly $15 billion.
Few days post DiDi’s ban, these companies were being singled out by Chinese regulators as targets of a probe that cited the similar reasons: “to prevent national data security risks”. Full Truck Alliance stocks have fallen by 11 percent and Kanzhun, Boss Zhipins parent company, dropped by 12 percent last week.
The CAC has accused 105 companies in the month of May 2021 alone, including Bytedance’s Douyin, and Microsoft’s Bing and LinkedIn, for collecting excessive amounts of users’ personal information and illegally accessing it.
April 2021 also saw Alibaba, co-founded by Jack Ma’s Ant Group, slapped with a record antitrust fine worth $2.8 billion. Late last year Chinese regulators began reigning in tech firms and halted an IPO for Ant Group at the last minute over “major issues” with its listing. Since then, Beijing has investigated several companies, including Alibaba and Tencent (TCEHY), for alleged monopolistic behavior or breaches of customer rights.
The Global Times, a state run tabloid published a commentary on Sunday, urging Beijing to not allow internet companies “to become rule makers for the collection and use of personal information”.
“The standards must be in the hands of the state to ensure that the internet giants exercise caution in collecting personal information,” the publication read. It further added, “[China] must never let any internet giant become a super database of Chinese people’s personal information that contains even more details than the state, let alone giving them the right to use those data at will.”
Data Privacy Issues Tied Up With International Tensions
The current crackdown to tame its new business dragon has left foreign investors confused about what is next for China’s tech companies.
China is currently revamping its policy with regards to data security. It is expected to implement the Date Security Law in September 2021, which would require companies that deal with big data to conduct risk assessments and submit reports to the government. Companies that deal with data that affect China’s national security are also expected to submit annual reviews.
Experts believe this is a new phase for China. According to Alex Capri, a Singapore-based research fellow at the Hinrich Foundation, “Data has become increasingly strategic, particularly as more powerful AI, algorithms and machine learning, combined with state-sponsored cyber activities, become more pervasive.” He added that as computing advances, the “massive treasure trove of data” held by large firms “will become evermore important to state actors”.
The current rising tensions with the US and the world has pushed China to be more cautious and self-reliant. Beijing’s anti-monopoly probes were restricted to companies whose operations were within Chinese borders. “China’s concerns over personal data are exacerbated when the data is at risk of being controlled by US interests,” said Brock Silvers, managing director at Hong Kong-based Kaiyuan Capital. Silvers added that it was “no coincidence” that the three companies were investigated immediately after raising capital in the United States.
The Chinese Paradox
China’s rapid ascent to power as a tech leader is largely to do with its roots in Beijing’s farsighted decision in the late 1970s to adopt a free market approach in many sectors. This led to China’s tech industry getting free access to gain capital overseas.
However, the current phase of the high degree of State control may curtail the freedom that these private companies have had to innovate and keep up with competitors. China’s most successful entrepreneurs have quit high-level positions in recent months. While they’ve cited reasons unrelated to the crackdown for stepping out, experts have described the atmosphere in China for tech firms as “increasingly toxic“.
“It’s a paradox,” said Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics (PIIE). “Xi wants the state to play a greater role. That’s very clear from all the things he said from the last 10 years. He wants the government to play a bigger role to get things going faster,” says Lardy, with the private sector playing a supportive role to the State. “[The Chinese president] clearly intends to rein in China’s tech giants so none will think it is so big that it can ignore the Chinese Communist Party,” says Steve Tsang, director of the SOAS China Institute, University of London.
China is currently working to become independent by reducing its dependence on the West and other trading partners, especially as Washington restricts Chinese companies’ access to the US’ tech. The private sector contributes two thirds to the GDP and employs 80 percent of its workers. In contrast, the State accounts for almost 70 percent of corporate debt in China outside the financial sector. Analysts believe that in an attempt to become self-reliant, China’s hampering of its big tech dragons could prove to be a risky path.