China has been in the news recently for the feud that ensued between China’s top regulatory body and the Tech Titans. By the thundering of the Chinese regulators on the ride-hailing app Didi, let’s crack open this tech crackdown and understand what it is!
What is the Chinese Tech Crackdown?
On June 30th, 2021, the ride-hailing services company DiDi premiered on the New York Stock Exchange (NYSE). It was the biggest Chinese IPO with a valuation of $68 billion largely surpassing that of Alibaba’s in 2014 which touched $25 billion.
Just a couple of months after its listing, the accusations by the State Administration for Industry and Commerce (SAIC) against Alibaba stated that the e-commerce giant was selling illegal and hazardous products, deceptive sales among many others. When the details of the supposed indiscretions were revealed, billions were chopped off from the company’s valuation.
And now history seems to be repeating itself under a different garb. According to the Cyber Administration of China (CAC), DiDi apparently illegally collected and misused the user’s data. This just came four days after the said company, spread over 15 countries, was listed on Nasdaq. The app stores were asked to remove 25 DiDi applications.
This cracking down of the Chinese regulators on these tech giants can be termed as the Chinese Tech Crackdown. What’s interesting is to know why the Chinese regulators have been thundering down on these companies. Let’s find out!
Why the Crackdown?
The cybersecurity regulators started with Ant Group’s Alibaba and since then a slew of investigations ensued with several tech mammoths. The corrective steps by the Chinese government based on antitrust and cybersecurity issues resulted in Alibaba being penalized for $2.8 billion. And many other companies; including Tencent, Meituan, ByteDance Ltd., JD.com Inc, etc. are under scrutiny for various reasons. They are also scrutinizing Mergers and Acquisitions deals dated back to as long as 2011 and levying fines on indiscretions and non-compliance.
You may be wondering why the Chinese government is after these tech companies? Well, typical of the Chinese government, nothing except the general information about protecting its people and the country’s economy has been revealed. And making sure the companies are compliant with the regulations was what they aimed to inspect.
Many theories have been floating around predicting the reasons for the crackdown. Some say the regulators intend to show who is in charge and put the techies in their place. While others assumed they feel threatened by the collective valuation of Alibaba and Tencent of over $2 trillion (which is greater than that of Bank of China). There have been these and many others making rounds among the people. However, no one but the Jinping government would know what’s at the heart of the matter.
Whatever the reason may be, it goes without saying that there have been severe effects of the crackdown. Let’s look at some of them!
What is the Impact of the Crackdown?
It seems that the regulators are contemplating some changes in the rules which would allow them more control over domestic companies. It may even be to the extent of having a say in the listing over international stock exchanges. What effect might this have on investors’ confidence? Not a good one, that’s for sure!
According to a report by Reuters, by the 8th of July, DiDi had lost $21.5 billion of market value after its premiere on the NYSE. This was posted the regulator’s instructions to take down the app from app stores. The shares of the already listed Chinese-tech companies such as Alibaba, JD.com, and Baidu also slipped down up to 4%.
There could be fewer and slower listings in the U.S. owing to the government crackdown, stated the senior managing director at Evercore ISI Group, Donald Straszheim.
It is quite natural to have fear and be cautious before investing in Chinese companies due to the crackdown. Even the experts say that it’s a ‘sell-now-ask-later’ situation and panic all around. What the outcome of it will be is known to none, except maybe the Chinese government. It’s a wait-and-watch game till then.
To avoid being under such defaming scrutiny at a stage where these tech giants had reached does not seem to bode well for their reputation. At Mantraa, we are highly skilled at keeping up with the ever-changing regulatory policies. We strive to safeguards you against any malpractices and litigations.
As the former U.S. Deputy Attorney General, Paul Mcnulty would say, “If you think compliance is expensive – try non-compliance.”