From Xi, With Love

If you thought China was done harassing its home-grown tech giants, you were sorely mistaken.

Tech shares tumbled in Hong Kong Monday amid the fallout from Beijing’s abrupt decision to ban Didi (the country’s largest ride-hailing company) from app stores just days after it went public in New York, raising $4.4 billion in the second-largest US listing by a Chinese firm ever. The debut gave Didi a market value of around $68 billion.

The Hang Seng Tech Index, which suffered egregious losses earlier this year after peaking in February, fell 2.3% Monday (figure below), extending losses from late last week.

Tencent, Alibaba and Meituan all fell sharply.

China’s Cyberspace Administration initially cited data security risks in the Didi matter. On Monday, the Global Times “explained” that China needed to ensure “strict supervision over Didi” given that the company is now listed in the US and its main shareholders are foreign.

The app block, the commentary said, is aimed at protecting national security and personal information. Beijing won’t permit China’s internet companies to build what the Party mouthpiece called “super databases” of Chinese personal information that are more comprehensive than what the government is able to collect.

You can conjure any number of dark jokes about Xi’s police state and the extent to which Beijing hopes to leverage big data and surveillance technology to keep apprised of its multitudinous populace.

Maybe Xi has a case of data envy, but the latest iteration of China’s rolling tech crackdown is obviously related to US listings, something China underscored Monday by expanding the Didi crackdown to Huochebang, Yunmanman and Bosszhipin, whose parents, Full Truck Alliance and Kanzhun, respectively, debuted in the US recently. Kanzhun is backed by Tencent.

Tencent, itself the subject of Party scrutiny, is poised to see its proposed merger with game streaming sites Huya and DouYu blocked by China’s antitrust regulator, Reuters said Monday. “Tencent has failed to come up with sufficient remedies to meet the State Administration of Market Regulation’s requirements on giving up exclusive rights,” a pair of sources said. Both Huya and DouYu are US-listed.

All of this has knock-on effects. Most obviously, the burgeoning Didi debacle raises questions about whether US investors should have been apprised of the potential for imminent Chinese regulatory action. At this point, you could fairly argue that anyone who invests in Chinese tech companies is simply derelict if they don’t understand that their investment comes with considerable risk given Xi’s express intent to rein in China’s tech sector. The crackdown dates to remarks from Jack Ma who, in October, criticized regulators (both in China and abroad) for stifling innovation. For his trouble, Ma saw Ant’s IPO iced by Beijing, which subsequently embarked on an aggressive campaign to bring the country’s tech behemoths to heel.

Additionally, China’s tech crusade is becoming extremely vexing for major shareholders. Softbank, for example, plunged Monday (figure below). It’s a top shareholder in Didi and also has a stake in Full Truck Alliance. Softbank’s investment in Didi was around $12 billion, according to The Information.

Naspers and Prosus dove in Johannesburg and Amsterdam. They’re perpetually at the mercy of Tencent given Naspers’ massive stake, held through Prosus.

“It’s inevitable to see selling from investors who had been pinning their hopes on Didi,” one Tokyo-based analyst quoted by Bloomberg said, of Softbank, calling the Didi situation “very difficult.”

Yes, “very difficult” indeed.

In characteristically obsequious fashion, Didi “sincerely thanked” the Party for its oversight.