Everything You Need to Know About Didi's Debacle

(Bloomberg Opinion) -- Didi Global Inc.’s post-debut debacle highlights Beijing’s regulatory supremacy. Its shares got punished after the Cyberspace Administration of China launched a review of its data practices just two days after the company’s New York public offering.

The crisis got worse for Didi, and quickly spread to other U.S.-listed Chinese stocks. Its ride-hailing app was banned from app stores in China, and its corporate structure was thrust in the spotlight. Investors had been betting that the company had avoided the fate that befell Ant Group Co. last year, when the fintech affiliate of Alibaba Group Holding Ltd. had its Hong Kong initial public offering canceled after choice words by founder Jack Ma against China’s banking system.

Yet Beijing has had a wary eye on overseas listing for a while. The variable interest entity structure, which allowed Chinese companies to skirt foreign ownership laws, was a loophole that had been left open but never formally approved. Now, under the guise of national security, mainland businesses that want to list on foreign bourses will be in for a rough ride. And those already listed better buckle up, too.

Here’s what Bloomberg Opinion columnists have been saying about Didi, foreign listings and Beijing’s regulatory assertiveness:

For Once, China and China Hawks See Eye-to-Eye: After years of squabbling over everything from soybeans and viruses to technology and Taiwan, it now looks like Beijing and Washington may be on the same page about one thing: U.S.-listed Chinese companies. Beijing doesn’t want companies with reams of data listing in the U.S., and skeptics in Washington (and Wall Street) are making it increasingly clear that opaque Chinese businesses aren’t welcome in its capital markets. The two sides may not see eye-to-eye on much, but any common ground makes for a welcome development. Unless, of course, you’re a Chinese company with foreign shareholders. — Tim Culpan

China Breaks the Global Model of VC Investing: When you find a unicorn, you invest in it — no matter where on earth it is. From Silicon Valley to Bangalore, the world’s biggest venture capital funds have been writing million-dollar checks to back these most promising of startups, which are valued at $1 billion or more. But distance sometimes imposes a lack of clarity. Now, China’s crackdown on its ride-hailing giant Didi Global Inc. raises an uncomfortable question for the VCs: Does their globe-trotting model work? — Shuli Ren 

How Wall Street Lost Sight of Didi's Risks: Investors who recently bought into multi-billion-dollar Chinese tech listings in the U.S. may have thought they’d be enjoying the riches of some of the most hotly anticipated IPOs of the year. Instead, they’re staring at headlines churning about Beijing-led regulatory probes and watching their gains vanish. It’s a glaring example that the types of risks once relegated to boilerplate language, deep within company prospectuses, are now front and center. — Anjani Trivedi

Money Stuff: Owning Chinese Companies Is Hard: Under Chinese law, it is somewhere between “complicated” and “forbidden” for foreigners to own certain big important Chinese tech companies. Variable interest entities have become a standard method for mainland Chinese internet companies to go public. Didi is just the latest in a long line of big companies and the market has come to accept it. Now there is a whole mess of Chinese and U.S. government proclamations about cracking down on Chinese companies listing abroad. If U.S. regulators ban Chinese firms from listing in the U.S., and Chinese regulators also ban Chinese firms from listing in the U.S., it will probably be hard for Chinese firms to list in the U.S. But maybe they’ll find a way anyway. — Matt Levine

The Tiger Who Came to Tea — Didi-China Style: 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 in the house and never showed up again. This fable isn't unlike 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. — Shuli Ren

For Didi, the U.S. Is a Wonderland of Amateurs:  The U.S. has tried very hard to deter Chinese companies from going public there, even threatening delisting procedures. Yet they keep on raising fresh capital, simply because investors have the appetite, regardless of the risk. By now, China’s antitrust stance is fairly well understood. But with Didi’s cybersecurity violations, we are entering a world of known unknowns. U.S. investors are on their own. — Shuli Ren 

It's Easy to Make Tech Titans Kneel. Ask China: U.S. trust busters could be forgiven for turning green with envy. Their counterparts in China levied a record fine on Alibaba Group Holding Ltd. in April, which responded with a display of humble contrition and compliance. Days earlier, the Federal Trade Commission was back in court in Washington, battling to stop Facebook Inc. from having its action against the social-media giant thrown out. It might seem that the home of antitrust could do with some enforcement lessons from Beijing. — Matthew Brooker (April 15, 2021)

$1.3 Trillion Rides on Faith in Chinese Regulators: For now, these companies aren’t doing anything illegal and Beijing hasn’t seen the need to close this loophole. Keeping VIEs operating in a gray area gives policy makers the flexibility to crack down at will. But as the trade war intensifies, China has a growing incentive to keep its tech giants, and their cash, at home. In that light, it’s not inconceivable that officials would take steps to eliminate the structure, even if it spooks foreign investors. — Tim Culpan (July 22, 2019)

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

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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