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China fines Didi Global $1.2 bln, fuelling hopes of thaw in regulatory crackdown

China fines Didi Global $1.2 bln, fuelling hopes of thaw in regulatory crackdown

China fines Didi Global $1.2 bln, fuelling hopes of thaw in regulatory crackdown

China fines Didi Global $1.2 bln, fuelling hopes of thaw in regulatory crackdown credits:google

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  • China’s cybersecurity regulator fined Didi Global Inc $1.2 billion on Thursday. Investigation forced ride-hailing leader to delist from New York within a year of its debut.
  • Didi ran afoul of the Cyberspace Administration of China when it proceeded with its US stock listing. Didi’s plans to list in Hong Kong delayed indefinitely after failing to obtain Chinese regulators’ approval.
  • Didi’s fine would be roughly 4.6% of the company’s $25.7 billion in revenue last year, or $527 million for relaunch of apps. Didi has updated its apps to ensure compliance once a relaunch is permitted, sources tell Reuters.
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HONG KONG/BEIJING – China’s cybersecurity regulator fined Didi Global Inc $1.2 billion on Thursday, bringing an end to an investigation that forced the ride-hailing leader to delist from New York within a year of its debut and made foreign investors wary of China’s tech sector.

According to Reuters, Didi ran afoul of the Cyberspace Administration of China (CAC) when it proceeded with its US stock listing despite being advised to do so while a cybersecurity review of its data practises was conducted.

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According to the CAC, Didi violated three major cybersecurity, data security, and personal information protection laws, a regime that the country revised and expanded last year as part of efforts to regulate its cyberspace and require companies to improve their data handling.

The regulator also stated that its investigation discovered Didi illegally collected millions of pieces of user information beginning in June 2015 and engaged in data processing activities that jeopardised national security.

It fined Didi 8.026 billion yuan ($1.2 billion) and, in an unusual move, blamed founder and CEO Cheng Wei and President Jean Liu for the violations, imposing fines of one million yuan each.

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It stated that “Didi’s violations of laws and regulations are serious… and should be severely punished.”

Didi, which is backed by investors such as US rival Uber Technologies and Japan’s SoftBank Group Corp, said on its Weibo account that it accepted the CAC’s decision and would conduct a thorough self-examination and rectification.

The regulatory action against Didi was part of a larger and unprecedented crackdown by authorities on antitrust and data security violations, among other things, targeting some of China’s most well-known corporate names.

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Authorities’ stance on the crackdown has shifted in recent months as they seek to boost an economy harmed by COVID-19 containment measures. The shift has given companies and investors hope that the worst is over, though concerns remain.

Following the Didi announcement, Chinese technology stocks rose, with the Hang Seng Tech Index gaining more than 1% in afternoon trade before paring most of its gains and ending the day up 0.12%.

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“The fine should put an end to Didi’s regulatory problems,” said Quiddity Advisors analyst Travis Lundy, who publishes on research platform Smartkarma.

“If there were more, they would have waited until those were understood and addressed before levying the fine,” he said, adding that the development should allow Didi to proceed with its Hong Kong listing.

Didi, which delisted from the New York Stock Exchange last month, had previously planned to list in Hong Kong by June. According to Reuters, it put such plans on hold indefinitely after failing to obtain approval from Chinese regulators.

Didi’s fine for app relaunch would be the largest regulatory penalty imposed on a Chinese technology company since the antitrust regulator fined Alibaba Group Holding and Meituan $2.75 billion and $527 million, respectively, last year.

Alibaba’s fine was equal to about 4% of its domestic sales in 2019, while Meituan’s was equal to 3% of its domestic sales in 2020. In comparison, Didi’s fine would be roughly 4.6 percent of the company’s $25.7 billion in revenue last year.

Companies can be fined up to 5% of their previous year’s revenue, or 50 million yuan, under China’s Personal Information Protection Law, while individuals can be fined up to 1 million yuan for violations.

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The CAC announced its investigation into Didi shortly after its debut in New York on June 30, 2021. It also ordered the removal of 25 Didi-operated apps from app stores and directed the company to stop registering new users, citing national security and public interest.

In its Thursday statement, the regulator did not say whether or when it would allow the apps to return to app stores or resume new user registration.

Didi previously stated that the apps would need to be restored, and three sources told Reuters that the company has updated the apps to ensure compliance once a relaunch is permitted.

According to one company source, managers met with Didi teams following the announcement of the fine and were told that there was still uncertainty about when the apps would be restored to app stores.

Didi did not respond immediately to a request for comment on the apps.

A Didi investor, who was not authorised to speak with the media and thus declined to be identified, said the fines should end the CAC’s investigation into Didi and allow the company to resume its apps and normal operations.

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The restrictions have taken a heavy toll on Didi’s dominance, allowing rival ride-hailing services operated by Geely and SAIC Motor to gain market share.

Didi stock skyrocketed in the New York initial public offering, giving the company a $80 billion valuation and making it the largest Chinese firm to list in the US since 2014. The stock had lost more than 80% of its value by the time it was delisted.

($1 = 6.7588 yuan)

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