Analysis: China is cracking down on data privacy. This is terrible news for some of its biggest tech companies.


Already, the company that pulled Uber out of China has been pulled from the app store in the country and warned that it violated laws regarding data collection. Regulatory pressure has extended its first days as a publicly traded company in New York, with shares falling nearly 20% on Tuesday and retreating even more on Wednesday. All told, Diddy has lost about $29 billion in market value since its peak.

not only sister sugar The company is now entering Beijing’s line of fire. Two other businesses that have recently listed in New York are truck-hailing company Full Truck Alliance and job listing firm Kanjun. It has been chosen as the target of the investigation by Chinese regulators “to prevent national data security risks”. Their shares have fallen 11% and 12%, respectively, this week.

The focus on Didi and other US-listed Chinese firms indicates that China’s technical action has entered a “new phase”, according to Alex Capri, a Singapore-based research fellow at the Hinrich Foundation.

“Data has become increasingly strategic, especially as more powerful AI, algorithms and machine learning, coupled with state-sponsored cyber activities, have become more pervasive,” he said, Stating that as computing progresses, the “huge treasure trove of data” large firms have will become ever-important to state actors.

This stage of China’s technical action is further defined by the relationship these companies have with the United States. While Beijing’s anti-monopoly investigations focused largely on operations within China’s borders, it’s hard to ignore how much the government’s latest actions have focused on firms that sought foreign investment.

“China’s concerns over personal data are heightened when the data is at risk of being controlled by US interests,” said Brock Silver, managing director of Hong Kong-based Kaiyuan Capital. The investigation was carried out shortly after raising capital in the United States.

Close to Full Truck Alliance and Kanjhun both said They will cooperate with regulators and conduct a thorough review of its cyber security practices.

A ‘Zero Tolerance’ Approach

Chinese regulators began reining in tech firms late last year, when they postponed IPOs Jack Ma’s Ant Group at the last minute “major issues“With its listing. Since then, Beijing has investigated several companies, including Alibaba and Tencent (TCEHY), for alleged monopolistic behavior or infringement of customer rights. Alibaba (Saint), which was co-founded by Ma Record $2.8 billion fined In April, for example, while ant group Instructions have been given to repair the operation.

The Didi investigation shows that regulators are now giving themselves even broader mandates when it comes to bridging the power of Big Tech.

On Sunday, the Cyberspace Administration – China’s top internet watchdog – accused Didi of “serious violations of laws and regulations” in the collection and use of personal information and banned Didi from the App Store.

Leader of the ruling Chinese Communist Party Then on Tuesday intensified the data protection campaign By pledging “zero tolerance” for illegal securities activity at home, and saying they would further control the ability of Chinese firms to list overseas.

The government said it would strictly regulate what kind of information those tech companies send and receive across country borders, and draft new rules about protecting sensitive data related to foreign listings.

Growing concern for data security

Concerns over data security in China – especially when the United States is involved – are not new, although they have been gaining traction in recent months.

earlier this year, a popular annual consumer rights show in china A national debate about secrecy and surveillance erupted and sent companies seeking to remain on Beijing’s good side.
and Tesla (TSLA)The electric car maker, run by Elon Musk, has been buoyed by allegations of data security this year, which at one point prompted Musk to publicly say that his company’s cars will never be used for spying in China. Tesla later announced that it has install a new feature For storing local user data in China.

The Chinese state media has also been emphasizing the need to focus on data security. The Global Times, a hawkish state-run tabloid, urged Beijing on Sunday not to allow Internet companies to “become rule makers for the collection and use of personal information.”

“Standards should be in the hands of the state to ensure that Internet giants exercise caution in collecting personal information.” read commentary, add that china “No internet giant should ever allow a super database of Chinese people’s personal information to contain more details than the state, let alone give them the right to access those data.”

Data protection is also sparking debate on social media in China, with many users calling for stricter rules on companies like Didi to protect their personal data.

A widely circulated criticism of Didi stems from 2015. Research Article, in which the company joined the state-run Xinhua News Agency to detail travel behavior about people traveling in and out of 17 major government agencies. The data examined how many cars were entering or exiting different premises, and used To draw conclusions about what kinds of government actions can lead to such activity.
“Using big data to analyze the activities and travel of every government agency? What about the military? Sensitive state departments?” a weibo user asked on Monday. “It’s totally national security related!”
another user It questioned the data collection practices of other Chinese companies including food delivery giant Meituan and delivery and logistics firm SF Express.

“As long as you’re using the apps, there’s almost no privacy,” the person said.

Risks of leaving American influence

Tensions between Washington and Beijing have also colored China’s latest round of technical action.

The two countries are still fighting over everything from technology and trade to allegations of human rights abuses in Xinjiang and Beijing’s control. Hong Kong. The United States put pressure on Chinese firms doing business in New York late last year, and now they need to Regularly Open Your Books to US Accounting Officers Or the risk of being forced out of the stock exchanges.

“President [Xi Jinping’s] The administration has been indicating for some time that it is moving towards a more self-reliant and less controlled control of major trading partners such as the United States.” Doug Guthrie, professor and director of the China Initiative at Arizona State University.

Heinrich Foundation’s Capri expects Beijing to “try and limit” [Didi’s] Negotiations with foreign players,” due to the company’s large share of US and Japanese investors.

According to Didi’s IPO prospectus, softbank (SFTBF) Vision Fund is the largest shareholder of the company with a 21.5% stake. Uber (Uber) and Chinese tech company Tencent (TCEHY) owns 12.8% and 6.8% respectively.

“Since the scuffle with Alibaba last year, it’s clear that the Chinese government wants to send a very clear message to all tech companies operating in China,” Guthrie said. “If you want to work safely and securely in China today, you must be an ally of the Chinese government.”

Any company that is “going global too quickly,” he said, is being pulled back over the line.

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Investors are already wary of companies still trying to tread the line between the United States and China. Chinese companies listed in both New York and Hong Kong outperformed the broader market in the Asian financial hub on Wednesday. Video-sharing website Bilibili fell more than 5%. Its US-listed stock fell 13% on Tuesday and Wednesday combined.

“It will be difficult for Chinese platforms to operate in the world’s liberal democratic markets on the one hand, while on the other hand China is trying to negotiate tighter domestic controls.” Capri said.

Beijing’s strategy has already raised questions about whether too much regulation could hinder innovation. Some of China’s most successful entrepreneurs have left high-level positions in recent months. Although they cited reasons unrelated to the action to exit the spotlight, experts described the environment in China as “for tech firms”.fast toxic
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Caiyuan Capital’s Silver said global investors may also find it risky to own Chinese tech stocks — a fear that could jeopardize Chinese firms’ ability to access foreign capital.

Silver said, Didi and other companies were now allowed to “list and raise offshore capital under scrutiny, so that regulatory scrutiny can follow almost immediately. This is deeply disturbing, deeply unfair to investors, and raises serious questions about the integrity of the market.”

He said Beijing could reassure investors by banning the companies under investigation until the public markets. That way, regulatory surprises would be limited.

“But until that happens,” he said, “Allocations for multiple China IPOs could be dramatically reduced or eliminated.”

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