A wave of government crackdowns on domestic Chinese tech companies did not spare ride hailing app Didi, by far the most popular option in the Chinese market. The app has been restricted from onboarding new users for nearly a year now due to data compliance violations, but is working on an imminent return to China app stores according to inside sources that spoke to the South China Morning Post.
The ride hailing app is thus presumably close to coming in line with the new data compliance requirements, which include improved security and user consent standards. With about 377 million active users prior to its delisting from China app stores, Didi had more than double the customer base of its next largest competitor, but has seen its ride orders drop by about 1/3 over the past year while competing services have seen substantial gains in traffic.
No timetable for restoration of ride hailing app to China app stores, but return expected very soon
During its period of data compliance exile, Didi has remained available to existing users that already have the app on their phones but disallowed from listing it with China app stores or offering it to new users.
The inside sources that provided this news did not have any indication of a specific date for the ride hailing app’s return, but some market analysts had expected it to be restored in June following its recent delisting from the New York Stock Exchange (NYSE). Didi was hit by a probe from the Cyberspace Administration of China (CAC) just four days after initially listing on the NYSE; the review took a mere two days to determine that the ride hailing app was inappropriately collecting and using user data and was in need of major reforms.
The move was seen by some as more of a punishment for listing overseas than as a true data compliance issue; the Chinese government strongly prefers that domestic companies do their IPOs in Shanghai, Shenzhen or at least in Hong Kong. The firms generally stand to make much more money by listing in New York or London. There has been little transparency into the data compliance violations throughout the whole process, with neither the government nor Didi offering much in the way of specifics about what the actual issues were.
Didi has moved trading to the over-the-counter market (OTC), coming in at a share price of $2.81 (a steep drop from its IPO price of $14). The company is not allowed to list in another public market, even a domestic one, until it completes the “rectification measures” mandated by the government.
Data compliance a smokescreen for overseas IPO retribution?
The theory of the ride hailing app being punished for listing on the NYSE is supported by the fates of two similar companies that listed overseas at roughly the same time last year: Full Truck Alliance and Boss Zhipin (Khanzun). Both announced NYSE listings in June of last year, and both quickly found themselves in the same boat as Didi: business restricted until “data compliance” improvements were made. There is word that the restrictions on both companies will also soon be lifted.
However, prior to the government crackdown on domestic tech giants, firms in China did tend to play fast and loose with user data. The government has had particular concerns about the sensitive personal information of Chinese citizens flowing from apps listed on China app stores to companies located overseas, particularly in the US. The campaign against the tech sector began rather abruptly at the end of 2020, as the government began rolling out draft rules that placed strong new regulations on industries that had previously been given a free hand in how they processed and used personal data. Major companies such as Alibaba suddenly saw probes into their data compliance practices, something ostensibly aimed at turning the country into a “technological superpower.”
The spate of public listings on the NYSE in the late spring of 2021 seemed to trigger the most robust response from Chinese authorities, however, with a number of companies delisted from China app stores. This led to the draft of the China Personal Information Protection Law (PIPL), which went into effect in November; the law created an essential equivalent to the EU’s General Data Protection Regulation (GDPR), but with added safeguards regarding cross-border transfers of personal information. Companies in the critical infrastructure sectors were also subject to stricter regulations in 2021, and in February the country amended its Cybersecurity Review Measures (strengthening security requirements for network products and services).
The apparent easing of restrictions on the ride hailing app and its contemporaries is part of a broader signaling of a paring back of these data compliance restrictions, something that began with a May meeting between Chinese officials and technology executives from leading domestic companies. Some analysts feel that tech firms may have a grace period available to them for at least the remainder of 2022, with those restricted from China app stores given a chance to reestablish themselves so long as they play by the new rules.