Didi says app removal may hurt revenue, other U.S-listed Chinese firms probed

BEIJING/HONG KONG, (Reuters) – Didi Global Inc (DIDI.N) said a regulatory order that its app be removed from app stores in China could hurt revenue, while other recently U.S.-listed Chinese firms also found themselves the subject of cybersecurity investigations.

Sunday’s takedown order from the Cyberspace Administration of China (CAC) comes just two days after the regulator announced an investigation into the ride-hailing giant and less than a week after the firm debuted on the New York Stock Exchange.

It also comes amid a widespread regulatory squeeze on domestic tech firms, focusing on anticompetitive behaviour and data security, that began with the scuttling of a $37 billion listing planned by Alibaba fintech affiliate Ant Group late last year.

“Both the Ant IPO cancellation and this action on Didi show that IPOs can be very dangerous in China, shedding light on one’s scale and operations that invite regulatory scrutiny,” said Martin Chorzempa, senior fellow at the Peterson Institute for International Economics.

On Monday, the CAC announced cybersecurity investigations into online recruiting company Zhipin.com and truck-hailing companies Huochebang and Yunmanman, which have merged to form Full Truck Alliance (YMM.N). Like Didi, Zhipin.com’s owner Kanzhun Ltd (BZ.O) and Full Truck Alliance went public in U.S. listings last month.

Full Truck Alliance said it would cooperate with the probe and will make changes to comply with rules. Kanzhun did not immediately respond to a request for comment.

“For a government that is keen to showcase its homegrown champions, one would think that China would want to deal with these issues in a timely and private manner,” said Zennon Kapron, head of research and consultant group Kapronasia, referring to the Didi and Ant investigations.

“The fact that this isn’t happening is a clear indication that China is looking to use these companies as a warning to other tech firms,” Kapron said.

DIDI’S DOLDRUMS

The CAC said it had ordered app stores to stop offering Didi’s app after finding that the company had illegally collected users’ personal data.

“The Company expects that the app takedown may have an adverse impact on its revenue in China,” Didi said in a statement but did not elaborate on the potential extent of the impact.

Analysts have said they do not expect a major hit to earnings as Didi’s existing user base in China is large. The removal of the app does not affect existing users.

In a June filing, Didi reported revenue of about 42.2 billion yuan ($6.5 billion) for the three months ended March 31. Of that, 39.2 billion yuan came from its China mobility division while about 800 million yuan came from its international business.

In addition to its dominant position in China’s ride-hailing market, Didi operates in 15 other countries.

Didi, which collects vast amount of mobility data for technology research and traffic analysis, said it will strive to rectify any problems and will protect users’ privacy and data security.

Didi is also the subject of an antitrust probe by China’s market regulator, the State Administration for Market Regulation, sources told Reuters last month.

The Global Times, a tabloid published by the ruling Communist Party’s official People’s Daily newspaper, said on Monday that Didi’s apparent “big data analysis” capability could pose risks to users’ personal information.

“No internet giant can be allowed to become a super database of Chinese people’s personal information that contains more details than the country, and these companies cannot be allowed to use the data however they want,” it said in an opinion piece.

Shares in Didi lost 5% last Friday after the news of the CAC probe, giving it a market value of $75 billion.

In its IPO prospectus, Didi said “we follow strict procedures in collecting, transmitting, storing and using user data pursuant to our data security and privacy policies.”

SoftBank Group Corp (9984.T), whose Vision Fund unit holds stakes in both Didi and Full Truck Alliance, saw its shares fall 5% in Tokyo on Monday.

($1 = 6.4721 Chinese yuan)