Internet & Tech

Out of reverse

Is regulatory pain over for Didi and Full Truck?


Didi: turned the corner?

Just a few years ago private equity investors were scrambling for the chance to take stakes in China’s fastest-growing internet firms. The potential returns were huge. At one point Alibaba’s fintech arm Ant Group was the world’s most valuable unicorn and ride-hailing app Didi was not too far behind in the rankings. But the exit window for pre-IPO investors in the duo has stayed firmly shut for most of the insiders after failed efforts to list on public markets (aborted by Ant and botched by Didi) triggered Beijing’s furious crackdown on the country’s leading ‘internet platforms’.

Things first began to go awry with the Chinese government’s antitrust probe into Ant, which resulted in the company shelving what would have been the world’s largest ever IPO in late 2020.

Investors did have a brief opportunity to divest from Didi when its stock price surged as much as 29% on trading debut in New York on June 30 last year.

But the moment soon passed as China’s cyberspace watchdog launched another investigation into the 10 year-old firm that stymied its growth prospects (for instance, by stopping it from signing up new users for its apps).

Both companies have since been revamping their businesses in a bid to recover their reputations with regulators, who have taken deadly aim at other platform companies. including in the edtech sector.

But if Ant and Didi were first targeted to send a message to other companies in the internet industry, some will say it is much better news that two years of intense scrutiny of the two companies by the government may be about to subside.

Earlier this month there was first the revelation that Ant had appointed Laura Cha as an independent director. The news stoked speculation that this could mean that it is closer to relaunching its IPO.

The Wall Street Journal has also reported this week that a year-long probe into Didi is concluding – another sign, perhaps, that Beijing wants to see more activity from its beleaguered tech giants amid a slowing economy.

Didi was removed from domestic app stores as part of a probe into data security at the ride-hailing firm. The US-listed logistics platform Full Truck was barred from adding new users for similar reasons. But the Journal says the new user bans at both firms could be lifted as early as this week, citing unidentified sources.

The report fuelled a spike of more than 50% in Didi’s share price the same day, before closing 24% higher at the end of trading.

Its shareholders have just approved a plan to leave the New York Stock Exchange, most likely in the next few days. The company has also informed shareholders that it needs to complete its delisting from the New York bourse before it can close the chapter on the cybersecurity probe back in China and thereafter pursue a relisting of its shares in Hong Kong.

The messaging from the Chinese government about the sector’s wider prospects has turned more dovish for a while, including comments after a seven-hour meeting between top diplomat Yang Jiechi and his US counterpart Jake Sullivan in Rome in March.

A few days after the closed-door meeting, the Financial Stability and Development Committee (FSDC) came out with an encouraging directive for stock market investors that the government was seeking to stabilise the economy through a period of uncertain growth.

Notably, the super regulator called for steps to “complete the rectification of big platform firms [i.e. the internet giants] as soon as possible while boosting the healthy growth of the platform economy”. A series of high-level meetings since then, including gatherings of the Politburo and the State Council’s executive session, have called for “supporting the healthy development of the platform economy” as well.

The crackdown on internet firms has worsened an economic slowdown that was “more severe than expected,” the Wall Street Journal concludes. Policies to contain Covid-19, including months of strangulating restrictions in major cities like Shanghai have added to the headwinds, putting pressure on the government to inject momentum back into a faltering economy.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.