The Economist July 10th 2021 59
BusinessSino-AmericantechtensionsIn the grip of anxiety
C
heng wei, the billionaire founder and
chief executive of Didi Global, had
scarcely a moment to revel in his firm’s
$4.4bn New York listing. Within 48 hours
of the initial public offering (ipo), which
valued the Chinese ridehailing giant at
around $70bn, regulators in Beijing
spoiled the party. On July 2nd the Cyber
space Administration of China (cac) said it
had launched an investigation into the
company. The announcement shaved 5%
off its share price.
Two days later the regulator ordered
Didi’s mobile app to be pulled from app
stores in China, halting new customers
from joining the service (existing users can
still hail taxis). The cacalleges that Didi
was illegally collecting and using personal
data. Didi said that it would “strive to recti
fy any problems” but warned of “an ad
verse impact on its revenue in China”. Pre
dictably, the ban also adversely affected
the company’s market value. When Ameri
can markets reopened on July 6th, Didi
promptly shed more than a fifth of it. It is
now worth $22bn less than a week go. The cac’s move is an escalation in Chi
na’s crackdown on big technology firms.
On July 5th it told three other apps—Yun
manman and Huochebang, which operate
lorryhailing and cargo apps, and Boss Zhi
pin, an internet recruitment service—to
stop enlisting new users. The trucking ser
vices, which merged under the name Full
Truck Alliance, and Kanzhun, which owns
Boss Zhipin, had together raised $2.5bn in
American flotations last month. Wolf warrior of Wall Street
All told, Chinese firms have raised $13bn in
America so far this year, and $76bn over
the past decade. Around 400 Chinese com
panies have American listings, roughly
twice as many as in 2016. In that period
their combined stockmarket value has
shot up from less than $400bn to $1.7trn.
Those investments are now in peril. On Ju
ly 6th Chinese authorities said they would
tighten rules for firms with foreign list
ings, or those seeking them. It is the star
kest effort yet to disconnect China Inc
from American capital markets.Besides regulating what corporate data
can and cannot be shared with foreigners,
the new rules would target “illegal securi
ties activities” and create extraterritorial
laws to govern Chinese firms with foreign
listings. According to Bloomberg, a news
service, Chinese regulators also want to re
strict the use of offshore legal structures
that help Chinese companies skirt local
limits on foreign ownership.
Nearly all Chinese tech giants listed in
America, including Alibaba, a $570bn e
merchant, as well as Didi, use such “vari
ableinterest entities” (vies). A vieis dom
iciled in a tax haven like the Cayman Is
lands, and accepts foreigners as investors.
It then sets up a subsidiary in China, which
receives a share of the profits of the Chi
nese firm using the structure. China’s gov
ernment has long implicitly supported
this tenuous arrangement, upon which
hundreds of billions of dollars of American
investments rely. Now it wants Chinese
firms to seek explicit approval for the
structure. The assumption is that Beijing
would be hesitant to grant it. Existing vies
may also come under scrutiny.
A formal blessing from Beijing may
help avoid the sort of kerfuffle Didi has
found itself in. In April the firm was among
30 companies called in by the cacand the
State Administration of Taxation. It was
given a month to conduct a sprawling self
inspection. It added a warning that it “can
not assure [investors] that the regulatory
authorities will be satisfied with our selfH ONG KONG
China seems intent on decoupling its companies from Western capital markets.
Nearly $2trn in shareholder wealth is on the line→Alsointhissection
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64 Schumpeter:Shalegrows up
— Bartleby is away