China’s Ministry of Industry and Information Technology announced a six-month campaign on Monday to regulate internet companies, particularly practices that “disrupt market order, damage consumer rights, or threaten data security.” That followed repeated fines against tech giants including Alibaba, Baidu, and Tencent for violating antitrust laws, and a new plan to restrict overseas listings by Chinese companies.
The crackdown has extended to successes once viewed as home-grown champions. Ride-hail company Didi Chuxing beat out Uber in China and made inroads in Latin America and Africa. On June 30, the company raised $4.4 billion in an IPO on the New York Stock Exchange—the largest for a Chinese company since Alibaba in 2014.
Two days later, Chinese authorities launched an investigation into the company. Citing “serious violations of laws and regulations in collecting and using personal information,” Didi was pulled from Chinese app stores and barred from registering new users. According to Bloomberg, the penalties could range from fines to a forced delisting. Soon after, another agency levied antimonopoly fines against Didi and other tech companies over mergers and acquisitions over the past decade.
Reportedly, Didi had been warned by Chinese regulators to delay its IPO but chose to move ahead with the listing. Other Chinese giants seemed to get the memo: ByteDance, owner of TikTok, which had reportedly been considering an overseas IPO, put those plans on hold after meetings with regulators, sources told The Wall Street Journal. On Tuesday, Tencent told Reuters it was temporarily suspending new China registrations on the ubiquitous WeChat app “to align with all relevant laws and regulations.”
The reasons for the seemingly sudden crackdown are unclear, but it comes amid moves by president Xi Jinping to assert more authority over every aspect of life. Observers say the government, empowered by a raft of new legislation, wants to regain control of tech companies that have become too big, too powerful, and all too willing to abuse their market share. At the same time, Xi seems to be realigning the country’s tech sector to favor state-led development in the areas he cares about, such as creating breakthrough technologies in artificial intelligence. And there’s growing fear that exposure to foreign markets—and foreign regulators—is too risky in an increasingly hostile international environment.
“Xi Jinping is always worried about political loyalty: to him, the Communist Party, the party’s ideology,” says Susan Shirk, chair of the 21st Century China Center at UC San Diego. She says Xi can’t be sure of the loyalty of China’s private tech titans, who’ve become rich and famous—and sit on large stores of data. “It just makes him very nervous because he doesn’t know what they’ll do with all of these resources. And at some point they could perhaps use them to organize a challenge to Xi Jinping or even party rule.”
Didi’s June 30 IPO, one day before the 100th anniversary of the Communist Party, prompted suggestions that the timing and US listing were unpatriotic. A July 5 editorial in the state-run Global Times said Didi, with 80 percent of the ride-hail market in China, holds sensitive information about personal travel and habits. It said the government won’t let internet giants “become rules-makers of data collection and usage,” adding that ”the standards must be in the hands of the government.” Rumors circulated on Chinese social media that Didi turned over user data to US regulators. The murmurings by online nationalists got loud enough that the company posted a denial to its official Weibo account.
“Xi Jinping is always worried about political loyalty: to him, the Communist Party, the party’s ideology.”
Susan Shirk, chair, 21st Century China Center, UC San Diego
After the IPO, a 2015 report by the company’s research arm recirculated on the internet. The paper detailed the comings and goings of government employees, including which agencies worked the longest hours, based on its trove of user data. That sort of visibility—combined with Didi’s highly detailed maps—can make authorities nervous.
“Clearly, the data that Didi holds is considered sensitive from a national security standpoint,” says Samm Sacks, senior fellow at Yale Law School Paul Tsai China Center. Didi has also faced criticism in the past over how it handled murder investigations, for failing to protect user data, and for using personal information it gathered to charge riders different prices.