Didi | A bump in the road

Chinese authorities are investigating the company over its use of data

What was meant to be a moment of pride for one of China’s Internet giants turned, in a matter of days, into an epic car-crash. On June 30, the ride-hailing app Didi, which dominates the China market, raised $4.4 billion in its much anticipated listing on the New York Stock Exchange, the biggest Chinese listing since Alibaba raised a record $25 billion in 2014. Didi’s IPO valued the company at $73 billion.

Within a week, Didi would have not only lost more than one-fifth of its market value, but found itself facing the threat of lawsuits from angry U.S. investors as Chinese authorities, days after the IPO, said they were investigating the company over its use of data, citing privacy and national security concerns. On July 9, Chinese regulators then took an extraordinary step of banning the country’s biggest ride-hailing app from registering new users, as well as removing 25 of its apps from app stores. An uncertain fate now awaits Didi, which has pledged to cooperate with the authorities.

The rise and sudden fall of Didi is the latest episode of a tug-of-war between the Communist Party and big tech companies, which burst into global attention in November when the IPO of Alipay, the financial payments arm of Alibaba, was suspended in Shanghai at the last minute. A number of investigations into tech companies then followed, with regulators taking aim at both monopolistic practices and the wealth of data that companies have accumulated.

Didi’s story began in 2012, when founder Cheng Wei launched an app in Beijing for hailing taxis, called Didi Dache. In 2015, the company merged with another hailing app, Kuaidi Dache. Thus was born Didi Kuaidi, later renamed Didi Chuxing (or Didi, for short).

Didi expanded beyond taxis to a range of services, from carpools to even luxury limos. Today, Didi corners a dominant share of the market in China — estimates range from 80 to 90% — along with an expanding global footprint in 16 countries, with a presence across Latin America, as well as in Australia, Japan and Russia. It has close to 500 million active users and around 15 million drivers, three times as many drivers as on Uber (although Uber is valued higher). After a bruising battle for the China market with Uber, Didi emerged on top, acquiring its rival in 2016. Uber is among its major investors today, along with SoftBank, Alibaba and Tencent.

Roadblocks

In 2018, Didi’s safety protocols became a matter of wide debate in China. A woman using its hitch-a-ride service was murdered by a driver in Shenzhen, and three months later that year another woman was raped and murdered by a driver in Zhejiang. Both drivers were sentenced to death, and the company suspended the hitch service.

The company promised to tighten its safety protocols. It also rolled out a service the following year seen as aimed at pleasing the Communist Party, that allowed passengers to choose to be driven by “verified party members” as it identified which drivers were members of the Communist Party.

Following the Didi IPO, authorities have said they will tighten oversight on how companies can list overseas. The Cyberspace Administration of China, which is leading the battle to tame tech companies citing their use of personal data, is now considering “a new regulation requiring companies with more than 1 million users’ data to apply for a cybersecurity review before seeking listing overseas”, the Party-run Global Times reported. “The government will not allow Internet giants to become rules-makers of data collection and usage,” the newspaper said. “The standards must be in the hands of the government to ensure that giant companies are restrained. No Internet giant is allowed to become a super data base that has more personal data about the Chinese people than the country does.”

China’s tech giants have seen “a combined $823 billion wiped from their market value since a February peak”, according to Bloomberg, coinciding with the raft of measures aimed at tightening control including anti-trust investigations.

In the last 10 years, as tech companies grew rapidly, data regulation in particular has become a priority issue for President Xi Jinping and the Party, notes Santosh Pai, an honorary fellow at the Institute of Chinese Studies in New Delhi who studies Chinese regulatory issues. “This is a pattern we have seen, from Alipay to Didi. Data, for the party, is becoming a national treasure.”

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