Didi shares crash as China tightens the regulatory screws

By Michelle Toh, CNN Business

Didi shares plunged almost 20% Tuesday in New York as fallout continued over news of the company’s troubles in China.

The company’s stock, which made its US debut only last week, closed down 19.6% on Tuesday at $12.49, well below its closing price of $15.53 on Friday.

Tuesday was the first trading day in the United States since Chinese regulators banned Didi’s ride-hailing platform from app stores in the country over the weekend. US markets were closed on Monday for the 4th of July holiday.

The Cyberspace Administration of China restricted the Didi Chuxing app from being downloaded on Sunday after saying it posed a cybersecurity risk for customers, and that the platform was “found to have severely violated the laws by illegally collecting and using personal information.”

The news has clearly rattled investors. Just last week, Didi had gone public in the biggest US initial public offering by a Chinese company since Alibaba’s debut in 2014, raising some $4.4 billion.

But only two days later, China launched a probe into Didi and suspended the registration of new users on the app. The company’s stock price also tumbled on Friday.

Didi, which is enormously reliant on its home market and has 377 million active users in China alone, has said that it is complying with regulators’ demands and working to make changes to its app.

The company has said that customers and drivers who already downloaded the app won’t be affected, but also warned that it expects a potential hit to revenue in China.

China’s crackdown on Big Tech

Dropping the hammer on Didi is part of a larger crackdown on Big Tech in China. The country’s government announced Tuesday it will increase regulation of overseas-listed companies.

China will begin regulating what kind of information those tech companies send and receive across the nation’s borders, with a strong focus on ensuring Chinese customers are safe from cybercrime or leaks of personal information.

The government will severely punish illegal securities activities, including fraudulent share issuance, embezzlement and market manipulation. It said securities fraud was prominent in overseas markets.

Several tech companies in the past few months have faced investigations for alleged monopolistic behavior or breaches of customer rights leading to record fines and massive overhauls. Chinese President Xi Jinping has endorsed the probes, setting regulatory crackdowns as one of the country’s top priorities in 2021, and he has continued to call on regulators to scrutinize tech companies.

China has a state-run economy, so going after tech for antitrust abuses could insulate the country from companies that take on unnecessary risks, including cyberthreats and potential market abuses. But some China experts believe Xi wants to avoid a situation similar to America’s battle with Big Tech companies that has given companies like Facebook, Google, Amazon and Apple so much power that they are perhaps beyond the government’s ability to regulate — despite several antitrust lawsuits and potential regulation. Xi may not want a competing power force in his country.

— Laura He, Sophie Jeong and Shawn Deng contributed to this report.

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