Why China is hindering its tech sector

BEIJING: Scuttled quotes and stock prices hammered by official threats: Beijing has launched a lightning and very public assault on some of the biggest names in Chinese tech.

The woes of transit giant Didi Chuxing this week have warned digital heavy hitters: what goes up, can come down … and fast.

Days after an IPO in New York that raised $ 4.4 billion, Didi’s app was banned from stores in its vast Chinese market due to data collection issues, resulting in led to the downfall of stocks and lawsuits from angry investors.

Similar cybersecurity investigations were announced on the platforms of two other Chinese companies listed in the United States a day later.

Motivated by fear of monopolies and data or by national pride and the control reflexes of the all-powerful Chinese Communist Party, Beijing is hurting its own businesses.

Here are a few reasons.

– Party control? –

At first glance, the goal is to tidy up a once free space where companies with large amounts of sensitive user data have flourished into a huge domestic market with little regulation.

More recently, Beijing has beefed up its network security regime while expressing concern over excessive data collection, allegedly to protect users from abuse, reflecting US concerns over popular Chinese apps.

But analysts say deeper forces are also at play.

“There is nothing the party likes less than things that are beyond its control,” said Kendra Schaefer of the consultancy firm Trivium China, referring to the ruling Communist Party.

The goal appears to be to establish a control mechanism, and one potential outcome is a cybersecurity review that could allow authorities to curb IPOs.

While Beijing has encouraged companies to go global, a rush of overseas-listed tech companies has likely caught the attention of regulators.

“These IPOs are taking place without sufficient regulatory clearance,” Schaefer told AFP.

“At least from the perspective of Chinese regulators.”

– Big data, big problems? –

As Chinese tech giants accumulate treasure troves of personal data on all aspects of life – from transportation habits to payments – President Xi Jinping’s government has grown increasingly uncomfortable about who is carrying it. control.

Part of the concern is that key data could leak beyond the country’s borders.

In an unusual move, China’s internet watchdog cited national security for its recent investigation of Didi, ultimately viewing his collection of personal data as a regulatory violation.

The company’s shares fell 24% on Tuesday, after an initial public offering received with fanfare.

Now U.S. shareholders are suing Didi for not disclosing ongoing discussions with Chinese regulators.

The screws have tightened in China’s tech architecture, with more than 100 apps ordered in May to rectify data collection issues, including prominent names like ByteDance’s Douyin.

Alibaba’s financial arm, Ant Group, leaked its $ 34 billion IPO last year, preceding an antimonopoly probe into the tech giant.

“Before that, we saw the government intervention in the Ant Group list … it’s very hard to say why the timing is such, but they are all related to data,” said Hong Hao of the company. Bocom International financial services.

– Monopolies and risk? –

Authorities have since extended their antitrust crackdown beyond Alibaba, with key policymakers vowing to curb monopolies and “prevent the disorderly expansion of capital.”

Companies including tech giant Tencent have been sanctioned over trade deals that allegedly violated anti-monopoly regulations, while Alibaba in April was fined a record $ 2.78 billion.

The e-commerce company had been criticized for forcing the practice of “picking one out of two”, forcing merchants to work with only one platform and not its rivals.

While such breaches have long been a feature of the industry, companies have since pledged to abide by anti-monopoly guidelines, including not behaving in an unfair manner.

– After that ? –

The damage is more than cosmetic.

“Chinese internet companies will officially bid farewell to their barbaric growth stage,” said Fang Xingdong, a former entrepreneur and expert at Zhejiang University.

In a commentary, he said establishing a “sense of compliance” would become an important strategy for these companies in the future.

For now, Beijing has pledged to strengthen the supervision of Chinese companies listed abroad and strengthen the management of cross-border data flows.

He did not provide details, but in an early indication of action ahead, Bloomberg News reported that regulators plan to revise foreign listing rules to close a loophole used by tech giants to attract capital. foreigners.

The changes would allow authorities to block a Chinese company from listing overseas, even if the unit selling shares is incorporated overseas.

– Who else could be affected? –

Chinese companies could play it safe by listing closer to home in the near term, given the regulatory space is “extremely volatile and uncertain,” said Schaefer of Trivium.

But this trend may not persist in the future, she said.

This week, the American electric vehicle company XPeng started operations in Hong Kong.

Companies like the Hello Inc bike-sharing platform and the Ximalaya audio service appear to have put their listing plans on hold in the United States, Bloomberg reported, but others, like convenience store Bianlifeng, are going from the before.

Hong of Bocom International believes that a listing in Hong Kong could guard against regulatory pressure from Beijing and Washington.

“Last year has been a big year for many of these Chinese US-listed companies that have returned to Hong Kong, and this year I think the process is actually accelerating,” he said. .