HONG KONG: China’s new cybersecurity regulator has bolded the fine-print risks in prospectuses. The government is investigating China’s Full Truck Alliance, better known as Manbang, and online recruiter Kanzhun, known as Boss Zhipin, both of which listed in New York in June, after hammering ride-sharing app Didi just days after it raised US$4.4 billion (RM18.3 billion) there.
The Cyberspace Administration of China (CAC) said on July 4 that it had ordered smartphone app stores to stop offering Didi Global’s app after finding that the ride-hailing giant had illegally collected users’ personal data. On July 2, the CAC announced an investigation into Didi to “protect national security and the public interest” after just three days of secondary trading following the company’s listing on the New York Stock Exchange.
The Didi crackdown is dramatic in its timing, but familiar in its methods. US investors have been repeatedly burned in floats by companies from industries at risk of upcoming regulatory action. That included the assault on the peer-to-peer credit industry in 2019, which happened shortly after some such lenders had started trading, and more recently the private tutoring sector. In each case the moves destroyed billions in secondary market value.
Now there are two new twists: the rise of a cybersecurity regulator looking to demonstrate its clout, and what may be a broader push by Beijing to quietly discourage domestic companies from listing in the US. For example, Reuters reported that Tencent-backed Waterdrop faced pushback from insurance regulators, but listed anyway – it has traded poorly since. Media reported officials put similar pressure to scrap US plans on podcast app Ximalaya. Of the 25 Chinese firms that listed in New York this year, 17 are underwater, with a median negative return of 22% per a Breakingviews analysis using Refinitiv data. The MSCI China Information Technology index is off 8% this year.
Lawyers are preparing class action lawsuits over the Didi IPO. But shareholders have no call to be surprised. Beijing’s crackdown on tech giants like Alibaba and Ant has been anything but secretive, and its goals – reducing monopolistic behaviour, financial risk and the abuse of personal data – are clear enough. Didi flagged the data security law passed in June as a risk in its prospectus.
There are more regulator risks in the pipeline. In addition to the Chinese tech crackdown, Washington has passed legislation to delist Chinese firms that don’t comply with auditor oversight by 2024. If Beijing’s is forcibly cooling Wall Street’s appetite for Chinese IPOs, it is probably doing investors a favour. – Reuters
