After a long wait, Chinese ride-hailing giant Didi was officially listed on the New York Stock Exchange on June 30. Goldman Sachs, Morgan Stanley, JPMorgan Chase, and China Renaissance acted as the underwriters, in addition to a number of Chinese-funded institutions such as CICC, BOC International, Bank of Communications International, CCB International, CMB International, ICBC International and Guotai Junan International. In the IPO, Didi’s issuance price is set at USD 14, which is at the upper limit of the issuance range of USD 13-14/ADS, and the IPO valuation exceeds USD 67 billion.
What makes the market feel awkward is that Didi has kept a low profile regarding its listing, and it is believed that this may be a result of the decline in its valuation during listing. The highest valuation for Didi once exceeded USD 100 billion, though the actual valuation of the issue price was only USD 67 billion.
On July 2, the Cyberspace Administration of China (CAC) issued an announcement stating that in order to prevent national data security risks, maintain national security, and protect the public interest, a network security review of Didi would be conducted. Didi complied with the order and proceeded to halt any new user registration for the time being.
The company added that it will cooperate with the cyber security review under the supervision and guidance of relevant departments. Moreoever, network security risks will be comprehensively sorted out and investigated, with further improvements to be made to its network security system and technical capabilities.
There were rumors in the market that the authority-issued network security review is a result of the company’s listing in the United States and the abundance of data it holds about China’s roads. Li Min, vice president of Didi, refuted these claims on July 3 and maintained that the company has not shared any data with the United States. Like many Chinese companies listed overseas, Didi’s user data is exclusively stored on Chinese servers. Additionally, although the online posts propagating the rumors are deleted, Didi says it plans to sue for rights protection.
However, Didi's problems did not end there. On July 4, CAC’s official WeChat account announced that Didi’s app was found to have violated laws and regulations by collecting and using personal information. In accordance to the relevant provisions of the Network Security Law, CAC requested the app store to remove Didi’s app, and demanded the company to follow the legal requirements and national standards to rectify the existing problems, so as to effectively protect the personal information security of users.
For starters, Didi has a huge market presence. The company has left footprints in nearly 4,000 cities, counties and towns across 16 countries. In a timespan of 12 months leading up to March 31, 2021, Didi's global average daily transaction volume was 41 million, with a total transaction volume of RMB 341 billion. As the network information department continuously issued restrictive announcements against Didi, it appears that the company is in a major trouble.
In addition to rumored data security issue, there are other rumors circulating online as well. For example, among Didi's shareholders, foreign capital holds the largest share. The prospectus shows that before the IPO, Didi’s founder and CEO Will Wei Cheng held 7% of the shares; its co-founder and president Jean Qing Liu held 1.7%. According to the arrangement, Cheng and Liu together have more than 48% of the voting rights. Including other management levels, the Didi management team holds more than 50% of the voting rights. Plus, there were comments that brought the focus to Adrian Perica, Apple's vice president of Corporate Development. Perica is a member of Didi's board of directors. Before joining Apple in 2009, he was with the Goldman Sachs Group for eight years. The most alarming thing is he once served in the U.S. Army and was an "intelligence officer."
These concerns are made worse through conspiracy theories. How then, should the troubles facing Didi be assessed?
Researchers at ANBOUND see that the issue could be explained with a simple logic, provided one looks at the right place. There are reasons to believe that Didi's restriction is a geopolitical matter. After recent years of competitions, the U.S.-China relations have entered the stage of geopolitical games among major powers, and "national interest" has begun taking the center stage in the bilateral relations. ANBOUND’s founder Chan Kung noted that the world has entered the geopolitical era long ago, and the outdated set beliefs no longer applies. To analyze the issue on hand is to consider the geopolitical landscape. Geopolitics is the relationship between major powers and national interests, and it pays attention to strategies, methods, resources, and cultural conquest. This makes Didi’s U.S. listing inseparable from "national interest", which in turn concerns the competition between China and the United States. The fact that the CAC has issued successive requests for the rectification of Didi shows a possibility that the China’s core circle does not want to rely on the United States. If this is true, then all investments in important fields are significantly dependent on the U.S. capital market and technology will no longer receive clear recognition.
The alleged "data security" issue is not the heart of the problem. Didi has made it clear that its data center is in China, and it has divulged any data to the United States. Similarly, in Apple's operations in China, the data center is also located in China. Therefore, "data security" is not the primary issue here, and further analysis on the matter based solely on news report will only continue to lead us astray from the reality.
As a third-party independent think tank, ANBOUND’s researchers believe that investment banking experts, lawyers, accountants, public relations consultants, etc. who serve listed companies need to remain objective to provide professional advice. Otherwise, it will be difficult to provide any meaningful insights in a new, geopolitical-dominant era, especially if one only focuses on the trivial issues.
Final analysis conclusion:
The CAC has demanded Didi to present itself forward for rectification purposes following its listing. This issue at hand does not concern "data security", but geopolitics. As both U.S. and China are focusing on national interests, one can expect both countries to experience a slew of decoupling issues as a result of geopolitical factors.
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