Auto Industry

A rough ride

Does hefty fine for Didi clear the road ahead?


Waiting to relaunch its apps

Are there any circumstances in which a fine of more than a billion dollars might be regarded as a good day at the office?

Top that up with a dramatic dressing-down from regulators and you might think that last week brought one of the worst days on record for bosses at Didi Global.

The ride-hailing firm was fined more than Rmb8 billion ($1.2 billion) last Thursday following a year-long investigation by the Cyberspace Administration of China (CAC) into violations of data security and the protection of personal information.

Regulators also slapped Didi’s chairman Cheng Wei and its president Jean Liu with personal fines of Rmb1 million each.

“The evidence is conclusive, the circumstances are serious, the nature is immoral, and the punishment should be severe,” the CAC fumed in an accompanying statement.

Investigators said they had discovered 16 types of violation, including storing driver identification numbers without encryption, collecting images and personal information improperly from customer phones, and analysing travel records without providing the required notifications.

Didi had illegally processed 64.7 billion pieces of personal information since its first violation in 2015, the CAC said, and made the situation worse when it “avoided fulfilling the explicit requirements from the regulatory authorities and maliciously evaded supervision”.

Perhaps as a result, the financial penalty (at a little under 5% of last year’s revenues) was close to the maximum level allowed under the Personal Information Protection Law, which was passed last year.

If Didi executives were furious about being punished for breaking laws that were not yet in effect they kept their feelings to themselves, opting to thank the authorities for their “inspection and guidance” instead.

That was probably a wise move in light of the angry response in June last year when Didi launched its New York IPO, apparently in contravention of instructions from the Chinese authorities.

Indeed, last week’s announcement of the massive fine could even be presented as a positive for Didi, if it brings more predictable conditions for its business.

Soon after the company went public, the Chinese authorities ordered that all 26 of its apps be withdrawn from local stores. Although existing users could still use Didi’s services, the ban meant that its growth prospects ground to a standstill. Didi will now be hoping that its apps can be reintroduced, allowing it to sign up new users once again and strike back at competitors that have been eating into its market share.

Didi’s monthly active users in China dropped a fifth last year to 80.7 million, according to QuestMobile, while rivals Caocao Mobility and T3 reported 65% and 125% monthly active user growth respectively.

However, the problem is that it doesn’t have a clear picture on when it might be allowed to relaunch its apps, which also seems likely to delay its preparations for a public listing in Hong Kong. Didi proposed last December to exit the New York Stock Exchange and shareholders approved the delisting in May.

Coverage of Didi’s punishment was limited in the Chinese media, except for a small number of articles talking about how it showed that the government is deadly serious about cybersecurity and data privacy. Nor was there much talk about what it might signal for the wider internet sector, which has been hoping that a long period of government displeasure is coming to an end, after the authorities signalled they might step up policy support for the ‘platform economy’ as part of efforts to bolster GDP growth.

Many of China’s leading tech stocks advanced following the news that the investigation into Didi had drawn to a close. But some commentators took a different line on its punishment, seeing it as further confirmation that the freewheeling days of the largest firms in the sector are finished.

“It will be more and more restricting for internet companies. Except for obeying the orders of the CAC, there is no other way for internet companies,” You Yunting, senior partner at Shanghai DeBund Law Firm, told Reuters.

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