Chinese ministry of Industry and information technology on Monday announced a six-month campaign to regulate internet companies, especially practices that “disrupt market order, infringe consumer rights or threaten data security.” . This followed repeated fines against tech giants including Alibaba, Baidu and Tencent for violating antitrust laws, and a new plan to restrict overseas listings of Chinese companies.
The crackdown has spread to successes once considered local champions. Rideshare company Didi Chuxing has beaten 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 opened an investigation into the company. Citing “serious violations of laws and regulations relating to the collection and use of personal information,” Didi was removed from Chinese app stores and banned from registering new users. According to Bloomberg, the penalties could range from fines to forced delisting. Soon after, another agency imposed anti-monopoly fines on Didi and other tech companies for mergers and acquisitions over the past decade.
Apparently, Didi had been warned by Chinese regulators to delay its IPO, but chose to go ahead with the listing. Other Chinese giants seem to have received the memo: ByteDance, owner of TIC Tac, who reportedly considered an overseas IPO, put those plans on hold after meetings with regulators, sources said The Wall Street Journal. Tuesday, Tencent told Reuters it was temporarily suspending China’s new registrations on the ubiquitous WeChat app “to align with all relevant laws and regulations.”
It’s unclear why this seemingly sudden crackdown is unclear, but it comes amid steps President Xi Jinping has taken to assert more authority over all aspects of life. Observers say the government, empowered by a series of new laws, wants to take back control of tech companies that have grown too big, too powerful, and all too willing to abuse their market share. At the same time, Xi appears to be realigning the country’s tech sector to foster state-led development in areas close to his heart, such as creating advanced technologies in artificial intelligence. And there is growing concern that exposure to foreign markets – and to foreign regulators – is too risky in an increasingly hostile international environment.
“Xi Jinping is always concerned about political loyalty: to him, the Communist Party, the party ideology,” said Susan Shirk, president 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 have become rich and famous – and sit on big data stores. “It just makes him very nervous because he doesn’t know what they’re going to do with all these resources. And at some point, maybe they could use them to organize a challenge to Xi Jinping or even the party rule. “
Didi’s IPO on June 30, a day before the Communist Party’s 100th anniversary, hinted that the timing and registration in the United States was unpatriotic. July 5 editorial in the state World time said Didi, with 80% of the ride-hailing market in China, has sensitive information about travel and personal habits. He said the government would not let the Internet giants “become decision makers in the collection and use of data”, adding that “the standards must be in the hands of the government”. Rumors have circulated on Chinese social networks that Didi transmitted user data to US regulators. The whispers from nationalists online grew loud enough that the company posted a denial on its official Weibo account.
After the IPO, a 2015 report from the company’s research department re-circulated on the Internet. Detailed paper the comings and goings of officials, including which agencies worked the longest hours, based on its mine of user data. This type of visibility, combined with Didi’s highly detailed maps, can make authorities nervous.
“Obviously, the data held by Didi is considered sensitive from a national security perspective,” said Samm Sacks, senior researcher at Yale Law School Paul Tsai China Center. Didi has also been the subject of criticism in the past for how he deal with murder investigations, for failing to protect user data and for using the personal information collected to charge passengers different prices.