Less than a year after its US market debut, Chinese ride-hailing giant Didi Global is set to exit Wall Street.
A majority of shareholders voted Monday to halt trading of the company’s shares on the New York Stock Exchange.
The company says the delisting is key to completing a cybersecurity review to resume in Hong Kong and resume normal operations in China.
The move comes as China’s big tech companies face intense scrutiny at home and abroad.
Beijing has pursued a wide-ranging crackdown on the industry, from slapping a record fine on e-commerce firm Alibaba to ordering social media giant Tencent to suspend new app launches.
She ordered Didi removed from app stores last year and launched an investigation citing concerns about data collection days after the company proceeded with its listing in New York, reportedly against the wishes of the authorities.
Amid slower economic growth, regulators’ stance appears to have eased in recent weeks, as the country’s Vice Premier Liu He told tech executives the government supports the sector’s development.
But Washington has also pushed for more accountability by Chinese companies. The U.S. Securities and Exchange Commission (SEC) last year passed rules to remove companies from U.S. stock exchanges if they don’t make their auditor’s books available for inspection.
They must also disclose whether they are owned or controlled by a government entity.
The SEC has said it has the same requirements for all foreign companies listed in the US, and of the more than 50 jurisdictions it has worked with to gain access to companies’ accounts, only two do not have the requirements met: China and Hong Kong.
“It is a legitimate request to ensure that their accounts are credible and would not harm investors,” said China Money Network’s Nina Xiang. “But the devil is in the details. Chinese regulators want to know what kind of review is being conducted and whether it could leak sensitive data to the US government.”
Companies like Didi are caught in the middle of a conflict.
As of March 31, 2022, 261 Chinese companies were listed on America’s three largest stock exchanges with a total market value of US$1.4 trillion (£1.1 trillion), according to the US-China Economic and Security Review Commission.
Investors are now weighing the risk of being thrown off these exchanges.
“All Chinese tech giants walk on eggshells,” said Edith Yeung, a partner at Race Capital.
Didi’s delisting from the US is also a sign of the impact of China’s new personal data protection laws, as Beijing aims to prevent information on people’s locations and movements from falling into the wrong hands.
Last year, China introduced two new security and privacy laws – the Data Protection Act (DSL) and the Personal Data Protection Act (PIPL).
The DSL classifies data collected and stored in China based on its potential impact on Chinese national security and regulates its storage and transmission.
The PIPL regulates the protection of personal data. It is based on the European Union’s General Data Protection Regulation (GDPR), which is a set of legal guidelines governing the collection and processing of personal data from individuals.
The rules have meant that companies like Didi — like Bytedance, owner of popular video-sharing app TikTok, or van-hailing and courier company Lalamove, which also processes data on location and movement — are unlikely to be listed in the US.
“For ByteDance, the only way to list is in Hong Kong,” Ms. Yeung said.
Ms. Xiang said that if Chinese companies can no longer be listed in the US, “it will have a devastating impact on China’s innovation ecosystem and future development.”
New York is home to the two largest stock exchanges in the world, with more than $50 trillion in companies listed on the NYSE and Nasdaq. In comparison, all stocks on the Shanghai and Hong Kong stock exchanges account for just a quarter of that total.
“The Chinese companies listed abroad are not only receiving money from American investors. They are also becoming accustomed to international governance standards, best practices in disclosure and investor protection, and how to be a responsible member of the global investment community,” Ms. Xiang said.
Experts are divided over the future of Chinese companies in US financial markets.
Some, like Ms. Yeung, believe there is still hope that mainland China and Hong Kong companies could sell shares in the US markets.
But even if Washington and Beijing could reach a compromise, few expect a return to the 2017-2019 heyday when dozens of Chinese companies took the US public.
All of this, Ms. Xiang said, has the potential to create a perfect economic storm: “If not managed properly, this could be the start of significant financial decoupling.”
As Didi bids farewell to Wall Street, we can look back on this moment as part of a widening fault line between the world’s two largest economies.
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