The sorry saga of Didi Chuxing’s beleaguered listing in the United States has been a bitter pill for its executives to swallow. It has also been an expensive lesson for investors, not only those in the mainland’s ride-hailing giant but in other popular Chinese tech stocks as well. In their scrutiny of tech companies and their potential predatory practices and standards of data protection, Chinese regulators have made clear the public interest takes precedence over corporate profits and investor interests.
Now, Didi is delisting in New York and will stage “a homecoming” with an initial public offering (IPO) in Hong Kong. The city is inadvertently benefiting from the fiasco. Since its New York debut, the price of Didi shares has halved that of its IPO. Its woes have been seen as a signal of Chinese regulators’ tough stance. Also, in a move seen as targeting Chinese companies, a law is being finalized in the US that mandates foreign companies open their books to US scrutiny or risk being kicked off the New York Stock Exchange and Nasdaq within three years. US-traded Chinese stocks have collectively lost more than US$1 trillion since February highs.
To soothe nervous markets, the China Securities Regulatory Commission (CSRC) has issued an official statement saying it has an open attitude about where mainland companies can seek to raise funds and respects their choices. It also denies reports that it is pushing for so-called variable interest entities (VIEs) to drop their listings in the US. Such structures have been commonly used for foreign listing, though their underlying stock ownership rights are often questioned.
Despite such reassurances, Beijing has made it clear that it fully intends to regulate the data-rich private sector and to offer better protection for domestic consumers, even if it means shareholder interests will take a back seat. It is especially concerned about the potential leakage of sensitive data to US authorities. In this regulatory reform, Beijing has tightened its grip on big data, probed into corrupt practices in the finance industry, cracked down on the private education sector and casinos in Macau. It has also been restructuring the over-indebted real estate sector.
Didi’s latest development triggered a sell-off of offshore-listed Chinese stocks, though these have recovered some ground.
Within the framework of “common prosperity”, China’s policymakers look increasingly confident that they can achieve data security, regulate the tech giants and promote a more equitable distribution of wealth without relying on the US capital markets, which are increasingly closed to mainland private companies.
Hong Kong’s global financial status is expected to play a big role in filling this gap. Didi’s homecoming will be a real litmus test.