China blocks Didi Chuxing from all app stores over misuse of user data

Current half-bn users can order rides if they downloaded the app before Sunday

China’s cyberspace regulator ordered app stores to remove Didi Chuxing, dealing a major blow to a ride-hailing giant that just days ago pulled off one of the largest US initial public offerings (IPOs) of the past decade. The Cyberspace Administration of China announced the ban Sunday, citing serious violations on Didi Global’s collection and usage of personal information, without elaborating. That unusually swift decision came two days after the regulator said it was starting a cybersecurity review of the company.

That effectively requires the largest app stores in China, operated by the likes of Apple and smartphone makers Huawei Technologies and Xiaomi, to strike Didi from their offerings. But the current half-billion or so users can continue to order up rides and other services so long as they downloaded the app before Sunday’s order.

The surprise probe and rapid decision by China’s powerful internet regulator piles on the scrutiny of Didi over issues ranging from antitrust to data security. The company has been grappling with a broad antitrust probe into Chinese internet firms with uncertain outcomes for Didi and peers like major backer Tencent Holdings It lost as much as 11 per cent of its market value at one point on Friday, after the watchdog revealed its investigation.

More broadly, Beijing has been curbing the growing influence of China’s largest internet corporations, widening an effort to tighten the ownership and handling of troves of information that online powerhouses from Alibaba Group Holding to Tencent and Didi scoop up daily from hundreds of millions of users. The regulator on Sunday ordered Didi to rectify its problems following legal requirements and national standards, and take steps to protect the personal information of its users.

On Sunday, the company said on its official social media account that it had already halted new user registrations as of July 3 and was now working to rectify its app in accordance with regulatory requirements. Didi’s IPO was led by Goldman Sachs Group, Morgan Stanley and JPMorgan Chase. In all, the ride-hailing firm appointed 20 advisers to manage the float.

The CAC didn’t specify on Friday what it will look into. But the timing of its announcements was significant, coming not just on the heels of Didi’s IPO but also the Communist Party’s 100th anniversary celebrations in Beijing.

Didi, one of the single largest investments in SoftBank Group Corp.’s portfolio, defeated Uber Technologies in China in 2016 before embarking on an ambitious international expansion. It started trading on Wednesday in New York after a $4.4 billion initial public offering, pulling off the largest debut by a Chinese firm in the US after Alibaba.

But Didi had to settle on going public at a far lower market value than previously targeted. It debuted at about $67 billion, barely up from its last round of funding in 2019, and far short of the most bullish expectations for $100 billion — a reflection of the regulatory scrutiny that’s hounded it ever since a pair of murders in 2018 that founder Cheng Wei has called its “darkest days.”

The Beijing-based firm responded to the subsequent crackdown with a fusillade of efforts to improve security across its network. It began to explore new businesses to offset slowing ride-hailing growth, from car repairs to grocery delivery. That served it well during the coronavirus pandemic, when whole cities came to a standstill. The company delivered an $837 million profit in the March quarter — a rarity among recent high-profile IPOs like Kuaishou Technology.

The latest move against Didi underscores the uncertainty surrounding the Chinese government’s crackdown on the internet sector. Earlier this year, the State Administration for Market Regulation announced it was looking into alleged abuses — including forced merchant exclusivity arrangements — at Meituan, also days after China’s third-largest internet company raised $9.98 billion from a record share placement and convertible bonds sale. “This is deeply unfair to investors,” Brock Silvers, chief investment officer at Hong Kong-based private equity firm Kaiyuan Capital, said on Friday. “And as a crucial matter of market integrity, China’s regulators should cease allowing companies to list while under investigation.”

A notice on ride hailing giant Didi Global's China app shows it updated user information and data privacy policy on June 29, one day ahead of its New York initial public offering.

The policy will be effective on July 7, according to the notice. China's cyberspace regulator said Didi illegally collected user data and suspended its app from app stores.

Didi did not immediately respond to a request for explanation on why it updated the policy that day. Chinese leaders are concerned about the influence of e-commerce, social media and other companies that pervade the lives of China's public. Most are privately operated.

In April, Alibaba Group, the world's biggest e-commerce platform, was fined $2.8 billion on charges of violating anti-monopoly rules.