Chinese regulator to fine Didi more than $1 billion over data-security breaches

Last year, Didi became a high-profile target in the Chinese government’s crackdown on the country’s internet sector. (Photo: Bloomberg)
Last year, Didi became a high-profile target in the Chinese government’s crackdown on the country’s internet sector. (Photo: Bloomberg)

Summary

Move ends yearlong investigation and will free firm to pursue a second listing in Hong Kong

SINGAPORE : Chinese authorities are preparing to impose a fine of more than $1 billion on ride-hailing company Didi Global, bringing an end to a yearlong investigation into the company’s cybersecurity practices, according to people familiar with the issue.

Once the penalty is unveiled, the government plans to ease a restriction banning Didi from adding new users to its platform, and to allow the Beijing-based technology company’s mobile apps to be restored to domestic app stores, some of the people said. The fine will also pave the way for Didi, whose app is used by tens of millions of users in China each month, to kick-start a new share listing in Hong Kong, these people said.

The Cyberspace Administration of China didn’t immediately respond to written questions. The company didn’t immediately reply to requests for comment.

Such a fine, which would account for about 4% of Didi’s $27.3 billion total sales last year, concludes a tumultuous year for the Chinese technology company.

Last year, Didi became a high-profile target in the Chinese government’s initiative against the country’s internet sector. Its shares plunged more than 80% from its listing price at one point after Chinese regulators stunned investors by announcing a data-security investigation into the company.

The probe came just days after the company’s listing on the New York Stock Exchange in June 2021. Chinese authorities also ordered app stores in the country to remove Didi’s mobile apps. Didi delisted from the U.S. exchange in June this year after telling shareholders it needed to do so to resolve the company’s cybersecurity investigation.

After China’s cyberspace administration unveiled the probe last July, The Wall Street Journal reported that the company had ignored advice from cybersecurity regulators to delay its June 30 listing on the New York Stock Exchange over concerns that public share-offering documents required by U.S. regulators might contain sensitive information and data.

The conclusion of the review into Didi’s cybersecurity practices adds to signs that Beijing may be moving to ease a crackdown on its homegrown tech champions that has seen heavy punishments meted out to companies including Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

At the end of June, Chinese regulators lifted a ban preventing two other Chinese internet companies, logistics platform Full Truck Alliance Co. and online recruitment company Kanzhun Ltd, from registering new users. Both were swept up in a cybersecurity crackdown around the same time as Didi.

Authorities also began granting publishing licenses for dozens of new videogame titles in April, ending a monthslong freeze in such activity.

Despite signs that the environment for tech companies may be getting better, investors remain concerned. The Hang Seng Tech Index, which tracks Chinese tech stocks listed in Hong Kong, has fallen about 20% this year.

After China’s cyberspace administration unveiled the probe into Didi last July, The Wall Street Journal reported that the company had ignored advice from cybersecurity regulators to delay its June 30 listing on the New York Stock Exchange over concerns that public share offering documents required by U.S. regulators might contain sensitive information and data.

Didi’s fine would be in line with similar punishments meted out to other Chinese internet juggernauts over the last two years, as Beijing sought to rein in the influence of its powerful technology companies.

In April 2021, China slapped a $2.8 billion fine on online retailer Alibaba Group Holding Ltd., representing about 4% of the company’s domestic revenue in 2019, for anticompetitive practices.

Authorities also imposed more than $500 million in fines on food-delivery giant Meituan in October, a penalty representing about 3% of the company’s domestic sales the year before.

Regulatory actions haven’t gone away this year, but new regulatory actions and rules this year have been fewer and less severe as China grapples with an economic slowdown.

Earlier this month, a Didi subsidiary was named among companies, including Alibaba and Tencent, that China had fined in March for failing to comply with antimonopoly laws and to disclose certain transactions. China’s central bank also said on July 15 that it had fined Didi’s payments unit, a current staffer and a former employee 4.65 million yuan, equivalent to about $690,000, over the mishandling of customer information and identity verification.

 

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