China Takes Didi Investors for a Ride

The Didi ride-hailing app on a smartphone arranged in Beijing, July 5.


Yan Cong/Bloomberg News

American investors buy shares in Chinese companies because they want to take bigger risks in exchange for bigger potential returns, and it looks like their wish is Beijing’s command. Witness how Chinese regulators have tanked the stock in ride-hailing firm

Didi Global Inc.

barely a week after the company raised $4.4 billion in a listing on the New York Stock Exchange.

The trouble started within days of last Wednesday’s listing, when Chinese regulators ordered Didi—the Chinese version of Uber and


—to stop accepting new customers and, later that weekend, told app stores to remove the app for download. The moves threatened the growth potential investors found so exciting. Beijing’s Cyberspace Administration, which issued these diktats, cited concerns about the security of user data.

Now Didi has become embroiled in what may turn into a broader Beijing crackdown on Chinese companies issuing shares abroad. The State Council on Tuesday said it would tighten oversight of companies listing overseas, particularly with regard to their use and storage of customer data. Beijing, which runs an increasingly extensive surveillance state, isn’t worried about its citizens’ privacy. Rather, it probably wants to make sure foreigners can’t access the same data that it can.

Two other recent U.S. listings,

Full Truck Alliance Co.


Kanzhun Ltd.

, also are in the crosshairs over ostensible data concerns after raising a combined $2.5 billion in their public offerings last month. Didi’s shares fell more than 20% Tuesday, closing well below its IPO price of $14.

Most of this counts as business as usual in China, as investors should have known. Didi’s prospectus disclosed that executives from Didi and at least 30 other internet companies in April were hauled in for a meeting with Beijing regulators, where they were told to conduct “self-inspections” for compliance with antitrust, tax and other laws. The company warned it could only assume its self-criticism, er, inspection had been sufficient.

Beijing’s habitual regulatory ambiguity might also explain why Didi pushed ahead with its offer even after regulators “suggested” it delay. The company decided to list absent a formal prohibition from Beijing, the Journal reports. Asking for forgiveness rather than permission often pays off in China’s vague, wink-and-nudge legal climate. As Didi noted elsewhere in its prospectus, the legality of most overseas listings of Chinese tech companies is an open question under Chinese laws that technically bar foreign ownership. Those listings have gone ahead anyway, and profitably so.

Didi’s plight reminds investors that what Beijing gives, it can easily take away—which is one of the risks for which bigger returns are supposed to compensate. This follows Beijing’s scuttling last year of what would have been a blockbuster initial public offer by

Jack Ma’s

Ant Financial in Shanghai and Hong Kong, apparently because Mr. Ma made the mistake of criticizing regulators in a speech.


Xi Jinping

is consolidating state control over the economy, so American investors in Chinese firms can expect more regulatory disruption. Those capital gains will come with capital political risks.

Main Street: If Joe Biden intends to outcompete Beijing, surely Milton Friedman still offers a more compelling model than simply copying the government-directed approach of Xi Jinping. Images: AP/Getty Images Composite: Mark Kelly

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Appeared in the July 7, 2021, print edition.

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