The long-running rout in Chinese tech shares that wiped away some $2 trillion in market value from a key gauge of China’s biggest internet companies may finally be over.
The Hang Seng Tech Index staged a late rally to close nearly 5% higher Monday after reports that authorities in Beijing were poised to lift a ban on Didi and allow the firm to add new users.
Beijing abruptly banned the country’s largest ride-hailing company from app stores last summer just days after it went public in New York, raising $4.4 billion in a star-crossed IPO that counted as the second-largest US listing by a Chinese firm ever.
Didi became a lightning rod for controversy and a symbol of the ongoing debate over US listings by Chinese firms. Late last month, the company won approval from shareholders to delist from the NYSE after a $70 billion wipeout (figure below), potentially paving the way for a Hong Kong listing.
China’s Cyberspace Administration initially cited data security risks in the Didi probe. Some reports suggested the company ignored the writing on the wall ahead of the US listing, prompting the aggressive crackdown.
The Wall Street Journal originally reported Beijing’s plans to conclude the yearlong probe. “Regulators plan as well to allow the mobile apps of logistics platform Full Truck Alliance and online recruitment firm Kanzhun back on domestic app stores, also as early as this week,” the Journal said Monday, citing people familiar with the plans.
In addition to serving as a microcosm of the simmering feud between Washington and Beijing over risks associated with Chinese firms listed on US exchanges, Didi symbolized the Party’s aversion to data collection by private firms. When Didi was initially removed from app stores, state media cited the need to protect national security and people’s privacy. One Party mouthpiece suggested Beijing wouldn’t permit China’s internet companies to build “super databases” of citizens’ personal information that are more comprehensive than what the government is able to collect.
Didi’s ADRs jumped more than 50% in early US trading after the Dow Jones report. That’s largely irrelevant, though. 50% after a 90% decline doesn’t amount to much.
In Hong Kong, Meituan rose to a three-month high as the stock priced in last week’s sales beat which, ironically, was helped along by a huge jump in revenue from a new business division that includes ride-hailing. The Hang Seng Tech Index has a long way to go before bulls can claim any sort of victory (figure below), but make no mistake: The Didi news is a big deal.
Chinese authorities have for months insisted regulatory scrutiny on the country’s homegrown tech firms was nearing an end. Liu He himself made at least two direct appeals to investors over the past several weeks in an effort to assure the market that the Party values China’s platform companies and will support their growth now that various “problems” have been rectified.
Analysts were pleased, if not jubilant. “It is a sign that regulators are following through on their pledge to end the crackdown on tech platforms, which will likely continue to improve sentiment on the sector,” Bloomberg Intelligence wrote. “It is definitely positive news,” said Straits Investment Management. “The path of least resistance is, most likely, upward from here.”
Of course, there are no guarantees. We talk about “the Party,” but Xi’s China is one-man rule. Any other descriptions are euphemistic. Maybe he’s satisfied that platform companies have learned their lesson. Maybe he isn’t. Time, and only time, will tell.
“Looking back at this moment in a few months, this is likely to be the inflection point,” Beijing Gelei Asset Management ventured. CEB International’s Banny Lam was unequivocal: “The worst is over for those technology companies.”
We’ve heard that before.
