After a year of investigation, the Cyberspace Administration of China (CAC) announced a record fine – CNY8.026b (US$1.2b) – imposed on Didi. Of course, the question that many have asked us is: is it good news or bad news?
Some of our thoughts here:
- For Didi, definitely it is better to have that certainty rather than not. At least it now knows what to do in order to move on;
- It is worth noting that the fines imposed on Didi was the highest permissible by laws in China – it showed that the State took this case very seriously;
- Whether this marks the end of the “crackdown” on Didi probably depends on what Didi would do next. It will probably need to adhere to the rules strictly – as it has publicly announced that it would;
- While there are many rival ride hailing services in China in Didi’s absence, nobody has yet been able to reach Didi’s level of wide coverage and services – especially in the premium segments;
- The question is without the data collected, will Didi still be able to expand its business beyond ride hailing, and support even its current market cap of US$17 billion?
- It has not been able to in the past – almost every new initiative was hugely money losing – the main challenge in our opinion was the competition in China. In each area Didi wanted to expand into there were strong incumbents, and Didi found it hard to manage supply chain;
- Those incumbents, i.e. the consumer internet platforms in China, are probably studying very hard the details of Didi’s violations. These are the red lines that they should not cross in the foreseeable future.