On the heels of Didi going public, China’s Cyberspace Administration came down hard and suspended the registration of new users from the company. Whats going on? It is unclear what the cyber security issues — but it seems to be a part of a larger antitrust push.
The forerunner was what happened in April 2021. Alibaba was fined a record $2.8 billion after antitrust regulators in China concluded the company had behaved like a monopoly.
A few days before, Didi went public China’s State Administration for Market Regulation (SAMR) summoned Didi and 33 other companies and warned them against any anti-competitive behavior and ordered internal inspections. While, for sure, Didi has a gigantic, and almost monopolistic presence in China over the past years — I am not exactly sure what recent actions that company has taken that is squeezing smaller rivals.
A part of the story looks more like a move against companies listing in the United States. Chinese internet companies typically adopt a “variable interest entity structure” – a loophole in Chinese law that gives the companies that “allows” companies to raise funds offshore, by registering in offshore tax havens that fall outside China’s legal jurisdiction. This was certainly true for the Starbucks like coffee brand Luckin which is registered in Cayman Islands — but not true for Didi.
WSJ reports ($) that Beijing had asked Didi to delay their IPO and Didi went ahead and did it anyway. There is some concern that Chinese data will fall into American hands. In a bizarre same but different mirror image, US Senator Marco Rubio railed against Didi and demanded to block its listing using the same audit oversight that Chinese government is also worried about.
For sure, the escalating US-China tensions seem to be having far reaching effects. But it is not just the US-China angle. One of the frustrating things is that everything about China in the US is viewed from a US-China lens which is important but an incomplete way to understand the complexity in China.
It is fair to say that Xi Jinping is reconfiguring the role of his premiership and the role of CCP, in the 21st century capitalist Chinese society where many of the firms are popular and were recently perceived to be in ascendancy.
I am reminded of Buffalo Springfield’s lyrics,
“There’s something happening here
But what it is ain’t exactly clear.”
We will return to this issue and explore more on the blog.