Info-tech

China widens probe beyond Didi to exert control over online data

Bloomberg July 5 | Updated on July 05, 2021

Watchdog to investigate platforms run by Full Truck Alliance Co and Kanzhun Ltd

China expanded a cyber security probe beyond Didi Global Inc to include two other recent US debutantes, moving with surprising swiftness to tighten its control over internet data in the interests of national security.

Beijing’s latest effort to rein in its top online companies unfolded swiftly over the weekend. Late on Friday, the top internet regulator said it was starting a cybersecurity review of the ride-hailing giant and later ordered app stores to remove its services from their platforms, dealing a major blow to the company just days after it pulled off one of the largest US IPOs of the past decade.

Didi app suspended in China over data protection

The Communist Party-backed Global Times warned in a Monday column that Didi’s information hoard posed a threat to individual privacy as well as national security, particularly since its top two shareholders — SoftBank Group Corp and Uber Technologies Inc — were foreign.

Then on Monday, the watchdog announced probes into platforms run by Full Truck Alliance Co and Kanzhun Ltd, which raised $2.5 billion in their own debuts in past weeks. The series of events shook investors, sending SoftBank down more than 6 per cent and hammering Didi’s peers, from Tencent Holdings Ltd and Alibaba Group Holding Ltd to Meituan.

“Didi seems to have rushed up their IPO process, indicating that there might be early signs of upcoming government scrutiny,” said Shen Meng, director of Beijing-based boutique investment bank Chanson & Co. “The Didi probe, together with the other investigations announced today, shows how the tension between China and the US is spilling over into the capital markets. The incident will suppress Chinese companies’ desire to go public in the US. It also adds to huge uncertainties facing investors who bet their money on US-listed Chinese stocks.”

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Data security concerns

Didi undoubtedly has the most detailed travel information on individuals among large internet firms and appears to have the ability to conduct “big data analysis” of individual behaviours and habits, the Global Times wrote Monday. To protect personal data as well as national security, China must be even stricter in its oversight of Didi’s data security, given that it’s listed in the US and its two largest shareholders are foreign companies, the newspaper added.

“We must never let any internet giant control a super database that has more detailed personal information than the state, let alone giving it the right to use the data at will,” the Global Times said in the commentary. While it’s not clear how Didi illegally collected personal data, companies should gather the least amount of information required for their services, it added.

Wider crackdown

The probe is part of a wider crackdown on China’s largest internet corporations, as the government seeks to tighten the ownership and handling of the troves of information they gather daily from hundreds of millions of users. As part of the reviews, the Cyberspace Administration of China ordered Didi, Full Truck Alliance’s Huochebang and Yunmanman platforms, as well as Kanzhun’s Boss Zhipin to halt new registrations, though existing customers can continue to use their services.

On Sunday, Didi said on social media that it had already halted new user registrations as of July 3 and was now working to rectify its app in accordance with regulatory requirements. It offered its sincere thanks to authorities for their oversight. In a follow-up statement, Didi said the regulatory move may have “an adverse impact” on its revenue in China.

The investigation comes hot on the heels of Didi’s float, which listed on Wednesday in New York after a $4.4-billion IPO — the largest by a Chinese firm in the US after Alibaba. SoftBank owned roughly 20 per cent of Didi following the listing, while Uber’s stake was about 12 per cent, according to an earlier Didi filing. Founder Cheng Wei owned about 6.5 per cent, just ahead of the 6.4 per cent held by Tencent. SoftBank sank as much as 6.1 per cent in Tokyo trading Monday, while Tencent slipped as much as 4.2 per cent.

Even before the CAC’s crackdown, Didi had been under close scrutiny from regulators since a pair of murders in 2018 that founder Cheng has called the firm’s “darkest days.” It was among 34 firms told by the antitrust watchdog to conduct self-inspections and rectify abuses, while the transport ministry had ordered ride-hailing companies including Didi to review their practices relating to driver income and pricing.

Full Truck Alliance, backed by Tencent, is little changed since it raised $1.6 billion in a June 21 listing. Kanzhun, also part of Tencent’s investment portfolio, has nearly doubled after its $912 million IPO. Other firms that listed in the US last month as part of a boom in Chinese companies selling shares overseas include grocery services MissFresh Ltd. and DingDong Cayman Ltd.

Published on July 05, 2021

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