How Beijing ends its probe of Didi Global will shape China’s post-crackdown tech sector
Nicholas Gordon in Hong Kong, filling in for Jacob Carpenter.
Okay, a slight mea culpa.
After I wrote on Monday that Beijing had yet to turn its rhetoric on easing its tech crackdown into action, the Wall Street Journal reported that Chinese regulators would end their probe into Didi Global, citing unidentified sources.
Chinese regulators launched their investigation into the ride-hailing firm’s alleged violation of national security laws two days after the company debuted on the New York Stock Exchange last July. Didi was barred from signing up new users, and its app was booted from Chinese app stores. Regulators later told Didi to prepare to delist from the NYSE.
The Didi probe quickly expanded into a sector-wide crackdown. Regulators followed their hit on Didi with a flurry of new regulations and investigations, at times wiping out entire sectors like ed-tech in an effort to bring the country’s tech giants to heel.
So, if the start of the Didi probe marked the beginning of China’s regulatory campaign against Big Tech, does its end mean the crackdown is over?
While regulators have been talking about easing the crackdown since the start of the year, “the Didi development is definitely the first time that the regulators have taken a proactive step to relax their scrutiny,” Angela Zhang, a professor at the University of Hong Kong and an expert on Chinese regulation, told me today.
Zhang expects the tech sector to get “a temporary reprieve for the rest of the year,” with any new directives to come after the 20th Party Congress later this year.
Didi would clearly welcome an end to Beijing’s probe, which has prevented the ride-hailing company from moving past its IPO fiasco. The company’s shares are trading 85% below their peak last July, and competitors like Geely-backed Cao Cao Mobility are snapping up its market share in China.
In an attempt to mollify regulators, Didi announced plans to move its listing from New York to Hong Kong. However, in April, the ride-hailing company reportedly put these plans on hold as a result of a cybersecurity probe.
Didi shareholders voted to delist from New York on May 23. Without an alternative market lined up, the company faces an indefinite period of limbo on the over-the-counter market, Fortune’s Yvonne Lau reported at the time.
But even if regulators do ease up, we shouldn’t expect a return to the status quo ante.
First, Didi is not getting away scot-free, with the Journal reporting that the company is expected to pay a hefty fine and grant Beijing a 1% stake and a more direct say in operational decisions.
Nor has Beijing indicated that it will downplay the national security, data privacy, or content issues that motivated its crackdown on Didi and other tech firms. China passed tough rules on data security last year, which prevent transferring any data outside the country without explicit approval from the authorities. (These rules may have encouraged some Western companies, like Airbnb and Amazon, to end operations in China rather than go through the hassle of compliance.)
Nor is there any clarity as to what Chinese companies need to do if they want to list overseas, whether in the U.S. or in nearby Hong Kong.
China tech companies already are changing their business operations to account for new regulations. Ant Group—another company that saw its IPO plans derailed by regulators—is shifting away from the politically fraught area of finance to focus more on tech, reports the (Alibaba-owned) South China Morning Post.
China’s tech entrepreneurs would be quite happy for a lighter regulatory hand, especially as they recover from the blow of China’s COVID lockdowns. But, a year after Didi, they know that Beijing calls the shots.
Still on hold. Reuters reports that Musk is struggling to raise further financing for his $44 billion deal to buy Twitter, in part because he won’t stop complaining about how many bots are on the social media platform. A group of private equity firms were in negotiations to provide up to $3 billion in financing, but negotiations are on hold given Musk’s threats to walk away from the deal.
Tencent frozen. China approved 60 video games for sale on Tuesday—though none from Tencent or NetEase, the country’s biggest video game developers. No foreign video game was approved for sale either. Video gaming has been part of the country’s tech crackdown, with regulators demanding changes to game content and playtime limits for minors. Game approvals were frozen for almost eight months, pushing Tencent and NetEase to look overseas for growth.
Held to ransom. Ransomware paralyzed the Italian city of Palermo over the weekend, reports Bleeping Computer. Local media reported that visitors couldn’t book tickets for the city’s public theaters and museums, and residents were forced to communicate with officials via fax. Attackers are using ransomware to target more and more governments in recent months, with Costa Rica declaring a state of emergency after a Russian-speaking group took down systems at the finance and labor ministries.
Good news for the Novastans. The Food and Drug Administration’s advisory board endorsed the Novavax COVID vaccine on Tuesday which, if approved by the FDA, would be the fourth COVID vaccine authorized for use in the U.S. Public health officials hope that the vaccine, based on different technology than mRNA vaccines, might encourage skeptics to get vaccinated. (Fortune has previously reported on Novavax’s cultlike following).
Credit risk. Bloomberg reports that buy now, pay later pioneer Affirm is having trouble packaging its loans to young shoppers to investors. Affirm funds a third of its business through securitization, but Bloomberg notes that Affirm’s packages are falling in price while becoming costlier to issue. Once a fintech darling, some investors worry the sector may get dragged down by inflation and rising interest rates.
FOOD FOR THOUGHT
Lunar plants. Two scientists have successfully grown plants in lunar soil, writes Fortune’s Bernhard Warner. While the Arabidopsis sprouts weren’t particularly impressive by earthly standards, that Robert Ferl and Anna-Lisa Paul, the study’s authors, were able to grow plants at all is impressive.
The study was part of NASA’s Artemis program, a scheme to bring together scientists in the public and private sectors to help launch a permanent presence on the moon by 2030. Before Artemis, says Paul, “nobody was thinking about greenhouses on the moon.”
And, as Warner writes, figuring out how to grow plants in nutrient-poor lunar soil can be useful for more terrestrial efforts as well. From the article:
If scientists can successfully grow terrestrial plants in lunar regolith, a soil that’s been repeatedly blasted by solar winds and is virtually devoid of basic life-sustaining nutrients, that knowledge could “unlock agricultural innovations that could help us understand how plants might overcome stressful conditions in food-scarce areas here on Earth,” [NASA administrator Bill Nelson] added.
Ferl agrees, calling these plant-growing experiments vital to advancing our understanding of cultivating crops in some of the harshest environments on Earth, like in the vicinity of heavy-metal-rich mining sites and in areas damaged by desertification. The experiments, he says, “inform the earthly application of our understanding about the limits of what biology can adapt to,” particularly in a rapidly changing climate.
IN CASE YOU MISSED IT
BEFORE YOU GO
Passing on. Sony announced Tuesday that Nobuyuki Idei, who served as the electronics company’s CEO from 1999 to 2005, passed away from liver failure before the weekend. Idei’s tenure was perhaps marked by a greater focus on entertainment, including the PlayStation brand. The PlayStation 2 was launched in 2000, eventually selling over 155 million units. It’s still the best-selling console of all time.
But Idei missed the wave of consumer electronics sparked by Apple’s iPod. Idei handed the company over in 2005 to Sir Howard Stringer, the first and, to this date, only, foreigner to lead the Japanese company.
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