China fines Didi Global $1.2bn, fueling hopes of a thaw in regulatory crackdown


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HONG KONG/BEIJING, July 21 (Reuters) – China’s cybersecurity regulator on Thursday fined Didi Global Inc $1.2 billion, ending an investigation that forced the New York taxi leader to delist within a year of its debut and left foreign investors wary Technology sector in China.

Didi clashed with China’s Cyberspace Authority (CAC) when it insisted on listing its shares in the US, although it was urged to wait until its cybersecurity data practices were reviewed, sources told Reuters earlier.

The CAC said Didi violated three major laws relating to cybersecurity, data security and personal information protection, a regime the country revised and expanded last year as part of efforts to regulate its cyberspace and requires companies to improve data handling.

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The regulator also said its investigation found that Didi illegally collected millions of pieces of user information over a seven-year period starting in June 2015 and carried out data processing activities that seriously affected national security.

He fined Didi 8.026 billion yuan ($1.2 billion) and, in an unusual move, claimed that founder and CEO Cheng Wei and President Zhan Liu were responsible for the violations and imposed fines of 1 million yuan each.

“Didi’s violations of laws and regulations are serious… and should be severely punished,” the post reads.

Backed by investors including US partner Uber Technologies Inc (UBER.N) and Japan’s SoftBank Group Corp (9984.T), Didi said in a statement on its Weibo account that it accepts CAC’s decision and will conduct a comprehensive self-examination and correction.

The regulatory action against Didi was part of a broader and unprecedented crackdown by the authorities on antitrust and data security violations targeting some of China’s most prominent corporate names, among others.

Authorities have shifted their tone on the crackdown in recent months as they seek to prop up an economy hurt by COVID-19 containment measures. This shift has given companies and investors hope that the worst is behind them, although worries remain.

Chinese tech stocks surged after Didi’s announcement, with the Hang Seng Tech (.HSTECH) index gaining more than 1% in the afternoon before cutting most of its gains to climb 0.12% by the end of the day.

“The fine should put an end to Didi’s regulatory problems,” said Quiddity Advisors analyst Travis Lundy, who posts on research platform Smartkarma.

“If there were more, they would wait until they are understood and addressed for a penalty,” he said, adding that the development should allow Didi to move to a Hong Kong listing.

Didi, delisted from New York last month, previously planned to be listed in Hong Kong by June. Reuters reported that such plans have been put on hold indefinitely after they failed to get Chinese regulatory approval. read more

A screen displays trading data from giant Didi Global on the floor of the New York Stock Exchange (NYSE) in New York, USA, December 3, 2021. REUTERS/Brendan McDermid


Didi’s fine will be the largest regulatory fine imposed on a Chinese technology company since the antitrust regulator fined Alibaba Group Holding Ltd (9988.HK) and Meituan (3690.HK) $2.75 billion and $527 million last year. dollars, respectively.

Alibaba’s fine was about 4% of domestic sales in 2019, while Meituan’s fine was 3% of domestic sales in 2020. By comparison, Didi’s penalty would be roughly 4.6% of the firm’s $25.7 billion in revenue last year.

Under China’s Personal Information Protection Law, companies can be fined up to 5% of their last year’s turnover or 50 million yuan, with a maximum fine of 1 million yuan for violators.

The CAC announced its investigation into Didi shortly after its New York debut on June 30, 2021. He also ordered app stores to remove 25 apps operated by Didi and ordered the firm to stop signing up new users, citing national security and the public interest.

The regulator did not say in a statement Thursday if it would allow apps to be returned to app stores or resume new user registrations, and if so, when.

Didi has previously said applications will need to be filed to restore the apps, and three sources told Reuters the company has updated the apps to ensure they are compliant after a restart is allowed.

A source at the company said managers called meetings with Didi teams following the announcement of the fine, during which they were told there was still little clarity on when apps could be reinstated in app stores.

Didi did not immediately respond to requests for comment on the apps.

Didi’s investor, who was not allowed to speak to the media and so declined to give his name, said the fines should end CAC’s investigation into Didi so the company can be allowed to resume its applications and normal business.

The restrictions hit Didi hard, eroding its dominance and allowing rival taxi services run by automakers Geely (GEELY.UL) and SAIC Motor Corp Ltd (600104.SS) to gain market share.

Didi’s shares soared in an initial public offering in New York, giving the company an $80 billion valuation and the biggest U.S. listing of a Chinese firm since 2014. By the time of the delisting, the shares had lost more than 80% in value.

(1 dollar = 6.7588 yuan)

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Reporting by Brenda Goh, Julie Zhu, Yingzhi Yang; Scott Murdoch, Zhang Yan, Kane Wu and Selena Lee; Written by Sumit Chatterjee; Edited by Muralikumar Anantaraman, Christopher Cushing and Nick McPhee.

Our Standards: Thomson Reuters Trust Principles.

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