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Beijing's Big Tech Crackdown Continues As Anti-Trust Regulators Probe IPO-Bound Didi Chuxing

Beijing’s Big Tech Crackdown Continues As Anti-Trust Regulators Probe IPO-Bound Didi Chuxing

Last fall, President Xi Jinping (according to western media reports) personally scrapped Ant Group’s $35 billion IPO, what would have been the world’s largest public listing, after Jack Ma criticized Beijing’s tech regulatory framework for ‘stifling innovation’ at an obscure industry conference.

Ma’s defiance unleashed a heavy handed response from Beijing, and since then Ant Group has been shackled by onerous new banking regulations, Alibaba has been slapped with a massive fine, and other Chinese tech giants like Tencent have found themselves targeted by new anti-monopoly rules designed to slow down their growth, and give competitors a better chance to flourish.

Now, it looks like another major deal might be threatened by China’s anti-trust crackdown on the country’s biggest tech firms.

According to a Reuters report, China’s newly empowered anti-trust regulator is in the early stages of an investigation into the firm. Regulators are looking for any signs of anti-competitive behavior (which is ironic, considering Didi used massive subsidies to beat out both domestic and foreign competitors, which were both eventually absorbed by Didi).

China’s market regulator has begun an antitrust probe into Didi Chuxing, three people with knowledge of the matter said, just as the ride-hailing giant is pushing ahead with what could be the largest initial public offering in the United States this year. But the firm also has domestic backers: Tencent is among its biggest backers.

The IPO is set to be the largest in the US since Alibaba’s 2014 $25 billion float. Didi is reportedly valued at $62 billion, according to Pitchbook data.

President Xi and other senior officials have spoken publicly about the need to chasten China’s tech giants, which they have accused of threatening the social order by becoming too capitalistic.

As Reuters readily admits, this probe is part of a pattern of Beijing clipping the wings of China’s tech giants. The investigation is “the latest in a sweeping crackdown on China’s so-called ‘platform’ companies, including Alibaba, and Tencent Holdings.”

The investigation is reportedly being led by the State Administration for Market Regulation, the regulator responsible for Alibaba’s multi-billion-dollar fine, and some of the new restrictions facing Ant Group and its rivals. The regulator, which has been delegated sweeping enforcement powers by Beijing, is looking for evidence that Didi used “any competitive practices that squeezed out smaller rivals unfairly,” according to the two anonymous sources cited by Reuters. Three sources also told the newswire that the regulator is also examining “whether hte pricing mechanism used by Didi’s core ride-hailing business is transparent enough.”

Did refused to comment to Reuters. The firm disclosed in its prospectus that it had met with regulators, including the SAMR, ahead of the IPO announcement. The regulators reportedly asked Didi and a host of other tech firms to conduct a “self-inspection” and submit compliance reports. The companies were asked to identify and correct possible violations of antimonopoly, anti-unfair competition, tax and other related laws and regulations. Didi said it had completed the self-inspection and the “relevant governmental authorities have conducted onsite inspections.” Still, the company warned that these measures might not be enough to ward off scrutiny from the government.

Reuters sources also said the probe is in its initial stages, and that the regulator has yet to give the company detailed instructions.

Didi currently operates in 15 countries and has nearly 500MM annual active users globally, according to the prospectus.

And while pulling the plug on the IPO would be extreme, at this point, an investigation by SAMR is cause for concern. If the recent past is any guide, a fine – probably a small one – seems likely.

Tyler Durden
Thu, 06/17/2021 – 11:40

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