The Tiger Who Came to Tea — Didi-China Style

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Many children love “The Tiger Who Came to Tea,” the story of an uninvited carnivore who decides to spend an afternoon with a little girl named Sophie and her mother. Though ostensibly polite, the animal consumed everything: all the tea, all the food, all the water from the taps. Sophie’s family restocked the kitchen, even bought special tiger food, but the big cat — who blew out the word “goodbye” from a trumpet —  never showed up again. 

This fable reminds me of China. The government, always keen to have a good party itself, does not care if it crashes those of others. The latest data security probe on ride-hailing giant Didi Global Inc. is an example of behavior by a plus-size, self-absorbed feline that doesn’t take overseas market niceties into account.

Take a look at the timeline. Didi announced its intention to go public in New York on June 10 and didn’t price its initial public offering until the end of the month. Yet China’s cybersecurity watchdog never said a word to a world awaiting the IPO — even though the regulatory framework used to review Didi came into effect a year ago. Inside China, the message was different. Weeks before the listing, regulators quietly suggested Didi wait and urged it to conduct a thorough self-examination of its network security, the Wall Street Journal reported. The company went ahead anyhow, facing pressure from its venture capital investors. But instead of ramping up pressure on Didi and making the review public, officials bit their tongues.

The likely reason: On July 1, the Communist Party was celebrating its 100th anniversary. No bureaucrat was going to cause drama and steal the show with a big hit on a big company. 

But as soon as the birthday party was over, China’s regulatory whips came cracking. On July 2, two days after Didi pulled off a mega IPO in New York that raised $4.4 billion, the Cyberspace Administration of China blocked its domestic business from adding new users, citing risks related to data security. On July 4, while Americans were away for their Independence Day weekend, China went a step further, asking mainland app stores to take down Didi Chuxing’s app too. 

Didi isn’t the only U.S.-listed Chinese firm in trouble. On Monday, the cybersecurity watchdog followed up with reviews of two truck-hailing apps operated by Full Truck Alliance Co., and an online recruiting app owned by Kanzhun Ltd. Both went public in New York last month. Meanwhile, China’s antitrust regulator is set to formally block Tencent Holdings Ltd.’s plan to merge China’s top two video game streaming apps, Huya Inc. and Douyu International Holdings Ltd., Reuters reported Monday. 

One almost wonders if China is consciously out to hog the media limelight. Either that, or it is oblivious to events in other parts of the world. Last November, just as the U.S. presidential elections took place, Beijing brought a last-minute halt to Ant Group Co.’s $35 billion IPO.

Regardless, Beijing has a clear message: China no longer cares whether the U.S. stock market is still open to its companies. 

A few years ago, Beijing maybe cared a bit. The nation’s domestic equity market experienced a spectacular crash in late 2015. In 2018, it entered a deep bear market again, caused by Donald Trump’s trade war. Chinese companies needed to raise capital, and the U.S. was the world’s most resilient and vibrant stock market. 

Much has changed since. Last year, China proved itself the only major economy to grow despite the Covid-19 epidemic. As such, it overtook the U.S. as the world’s top destination for new foreign direct investment, while the country’s stocks and bonds also hit record highs. Beijing is no longer worried about capital raising. If anything, it is worried about too much hot money going in.

From Beijing’s viewpoint, it has made a lot of progress ensuring market fairness and discipline — and doesn’t need to be concerned about the sentiments of foreigners. For instance, on the mainland, a company’s substantial stakeholders have to disclose how many shares they have pledged out for margin loans; and the exchanges regularly ask companies to comment on negative news coverage to assuage any public concerns.

By comparison, Chinese companies listed in the U.S. are not required to disclose share pledges by executives. The U.S. exchanges and investors have no clue what kind of business news is circulating in China about companies coming to market in America. (The government’s hesitancy about the Didi IPO, for example, has been floating around in Chinese media for weeks, including in the influential outlet Caixin.) Foreigners would get better and proper protection on issues such as corporate governance if they went to China and sifted through listed stocks there.

Chinese companies seem perpetually drawn to New York, even though the U.S. government has tried very hard to deter them from going public. In June, China Inc. raised $7.9 billion, the highest monthly figure since Alibaba Group Holding Ltd.’s IPO in September 2014, data compiled by Bloomberg Opinion show. U.S. investors need to read the tea leaves about the mainland companies coming stateside to raise money: China has trumpeted goodbye and is off to another party. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

©2021 Bloomberg L.P.

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