What Didi’s US release teaches us about China and Wall Street

Didi logo on smartphone.

Less than a year after its debut on the American market, the Chinese ride-hailing giant Didi Global is on the verge of leaving Wall Street.

A majority of shareholders voted Monday to stop trading the company’s stock through the New York Stock Exchange.

The company says the delisting is essential to complete a cybersecurity review in order to re-list in Hong Kong and resume normal operations in China.

The move comes as major Chinese tech companies face intense scrutiny at home and abroad.

Beijing has continued a massive campaign of repression against the industry, slaps e-commerce company Alibaba with record fine for ordering social media giant Tencent to halt rollout of new apps.

He ordered Did removed from app stores last year, citing data collection issues, days after the company moved forward with its New York listing, apparently against the wishes of authorities.

In recent weeks, amid slowing economic growth, regulators’ stance appeared to soften, with Vice Premier Liu He telling tech executives that the government supports the development of the sector.

But Washington has also pushed for more accountability from Chinese companies. The US market regulator, the Securities and Exchange Commission (SEC), last year finalized rules to remove companies from US stock exchanges if they do not make their auditors’ books open for inspection.

Why are Chinese companies leaving US markets?

They will also need to indicate if they are owned or controlled by a government entity.

The SEC said it has the same requirements for all foreign companies listed in the US and of the more than 50 jurisdictions it has worked with to access company accounts, only two have not complied: China and Hong Kong.

“It’s a legitimate request to make sure their accounts are credible and don’t harm investors,” said Nina Xiang of China Money Network. “But the devil is in the details. Chinese regulators want to know what kind of audit will be done and whether it means sensitive data can be passed to the US government.”

Companies like Didi are caught in the middle of the clash.

As of March 31, 2022, 261 Chinese companies were listed on the three largest US stock exchanges, with a total market value of $1.4 billion (£1.1 billion), according to the United States-China Economic and Security Review Commission.

Investors are now weighing the risk of being kicked out of these exchanges.

“All Chinese tech giants are walking on eggshells,” said Edith Yeung, partner at Race Capital.

Why is Beijing worried about data?

Didi’s delisting in the United States is also a sign of the impact of new personal data laws in China, as Beijing aims to prevent information about individuals’ whereabouts and movements from falling into the wrong hands.

Last year, China introduced two new security and privacy laws – the Data Security Law (DSL) and the Personal Information Protection Law (PIPL).

The DSL classifies data collected and stored in China according to its potential impact on Chinese national security and regulates its storage and transfer.

The PIPL regulates the protection of personal information. It is modeled after the European Union’s General Data Protection Regulation (GDPR), which is a set of legal guidelines for the collection and processing of individuals’ personal information.

The rules mean that companies like Didi – such as Bytedance, owner of popular video-sharing app TikTok or messaging and messaging services company Lalamove, which also process location and movement data – are little likely to enroll in the United States.

“For ByteDance, the only way for them to register is in Hong Kong,” Ms. Yeung said.

Can China afford to lose access to Wall Street?

Ms Xiang said if Chinese companies can no longer be listed in the United States “it will have a devastating impact on China’s innovation ecosystem and future development.”

New York is home to the two largest stock exchanges in the world, with companies worth more than $50 billion in total listed on the NYSE and Nasdaq. By comparison, all stocks on the Shanghai and Hong Kong exchanges are only a quarter of that amount.

“Chinese companies listed overseas are not just getting money from U.S. investors. They’re also getting used to international standards of governance, best practices in disclosure and investor protection, and how to deal with them.” ‘to be a responsible member of the global investment community,’ said Xiang. mentioned.

Experts are divided on the future of Chinese companies in US financial markets.

Some, like Ms. Yeung, believe there is still hope that companies from mainland China and Hong Kong could sell stocks in U.S. markets.

But even if Washington and Beijing could reach a compromise, few expect a return to the golden age seen between 2017 and 2019, when dozens of Chinese companies listed the United States.

All of this, Ms. Xiang said, has the potential to create a perfect economic storm: “If not handled properly, it could be the start of a significant financial decoupling.”

As Didi bids farewell to Wall Street, we can view this moment as part of a growing fault line between the world’s two largest economies.