Didi, China’s ride hailing giant, went IPO quietly on the 30th of June – a day before the centenary celebrations of the founding of the communist party of China (CPC). You probably noticed that the US$68 billion IPO went as quietly as possible – no bell ringing, no celebrations, nothing.

The pressure came promptly after 1 July. On Friday (2 July), Cyberspace Administration of China (CAC) announced a “cyber security” investigation on Didi, and halted new user registrations.

On the evening of Sunday 4 July, a bigger bombshell dropped. CAC ordered app stores in China to take Didi app off, while a review is ongoing.

What do we know?

While there are a lot of speculations, and some media drawing links with irrelevant incidents (such as – antitrust), we thought it would be useful to put some facts, as well as our interpretation:

  1. This is not an antitrust investigation. Antitrust investigations are typically conducted by State Administration for Market Regulation (SAMR). However, this issue comes directly from CAC – the body that regulates, supervises, and censors the Internet in China.
  2. CAC enforces the 2016 Cybersecurity Law of China (originally text here). While the Law is seemingly quite strict, A colleague of ours moderated a dialogue between CAC and a few foreign companies in China in 2017, where a CAC director emphasised that people should understand the intention of the law and expect the enforcement to be reasonable.
  3. Official announcements from Central Government Agencies are usually very carefully worded. CAC’s first statement says “to prevent the risk from expanding“, signifying that certain risk has already incurred. The halt of new user registration, and the removal from app stores, can be seen as ways to contain the damage.
  4. It seems the issue is related to certain documents that Didi has handed over to the SEC, which contain information that the CAC regards as state secrets. There are speculations on what this information actually is – but it is not surprising especially when Didi is part of the key information infrastructure in China.
  5. Didi very likely knew the risk before IPO – and made the calculation decision to do it right before the CPC celebrations. Remember: Didi’s president Jean Liu is the daughter of the founder of Lenovo and the family has connections. However, there must be bigger problems for Didi leadership if it did not go IPO before 1st of July – maybe it is a bet-on agreement, maybe some redemption rights, maybe some personal guarantee.  (Hence the very quiet IPO).
  6. It is extremely unlikely the government will stop the services of Didi, or break up the company. Millions of drivers’ livelihoods are dependent on it – and as said above, it is a key piece of the information infrastructure that can’t stop. Stability is still the paramount concern of the government in China (or probably any other government).
  7. Other companies that recently went IPO in the US would be investigated too, as the CAC announced this morning. The companies directly impacted by this morning’s announcements are Manbang and Boss Zhipin.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.

 

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