Didi fears further retaliation from China’s regulators

Didi fears further retaliation from China's regulators

Didi Chuxing is set for further punishment from Chinese regulators after the bus giant became a major target of Beijing’s crackdown on the country’s tech giants.

The company’s management remains concerned that it is in line for additional sanctions, four Didi employees told the Financial Times, even after China’s Cyberspace Administration last month issued an 8 billion fine of Rmb ($1.18 billion) for the country’s “serious” and “vile” breaches. data security laws.

Whether Didi can free itself from regulatory scrutiny is crucial to the company’s future, after its huge growth was brought to an abrupt halt by probes by the CAC and six other government agencies.

Its dominant position in ride-hailing was hit when the regulator placed the group under investigation shortly after its $4.4 billion IPO last June. This year, it pulled out of the New York Stock Exchange in an effort designed to curry favor with Beijing.

The investigation into Didi has not officially ended, so it has continued to be unable to register new customers and drivers, freeing up the market for competitors such as T3 Chuxing, which wooed investment from state conglomerate Citic Group, and Geely-owned Caocao Chuxing .

The fine announced by the CAC last month was expected to pave the way for Didi to re-install its app on Chinese app stores, but two weeks later, services are still down. Experts said they expected Didi to reappear in app stores, but the company was unclear on the timeline.

The CAC criticized the company’s data practices, saying it “seriously affected national security.” Founder and CEO Cheng Wei and chairman Jean Liu were each fined Rmb1 million.

Analysts said Didi’s unusually harsh rebuke from China’s powerful data watchdog could prompt other regulators to step in with their own punitive measures.

A Didi employee said there had been an internal discussion about the possibility that the Ministry of Industry and Information Technology, which regulates the country’s internet platforms, could administer an additional fine.

Another mid-level manager said: “We need a state shareholder to come in to completely get rid of the regulatory risks. Then the regulators will trust us again.”

Wang Congwei, a Beijing-based lawyer specializing in data security at Jingshi Law Firm, said that if Didi did not improve its data security, the company would not only face further administrative penalties, but could expose themselves to criminal proceedings.

Didi’s dominant position in ride-sharing is under pressure. Q3 accounted for 16 percent of orders nationwide in June, compared with 5 percent a year earlier, according to a Bernstein analysis. Didi’s share of orders fell 9 percentage points to 72 percent in the same period.

Meanwhile, the company is working to increase the proportion of its drivers with full licenses, a demand from regulators and necessary for an eventual Hong Kong listing.

For years, most of Didi’s drivers hit the streets without the driver’s license needed to drive a car there. But a series of safety incidents and two killings of female passengers by Didi drivers prompted officials to demand the company comply with licensing rules.

The CAC investigation has accelerated Didi’s efforts to comply with the rules. About three-quarters of Didi’s drivers had the correct documentation in June, compared with just 45% in the same month last year, according to data from China’s transport ministry.

Many Didi investors are optimistic about the company’s prospects. Two members of a Tencent investment team believed the company’s punishment was over. “The fine fell short of people’s expectations,” said one.

Alibaba was hit with an 18.2 billion Rmb fine last year for antitrust violations, the largest regulatory fine levied on a Chinese technology company to date.

Duncan Clark, founder of Beijing-based consultancy BDA China, said slowing economic growth could prompt Beijing to rethink its handling of Didi and other tech giants as officials focus on supporting the occupation

“The government does not want to destroy its Internet companies, but has them as malleable allies in pursuit of its goals,” Clark said.

Didi did not respond to a request for comment.

Additional reporting by Nian Liu in Beijing


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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!