After Didi and Ant Group, should investors be worried?

The most recent crackdown on the Chinese ride-hailing firm has investors speculating on who’s next. Experts say short-term pullback on US-based listings can be expected.
After Didi and Ant Group, should investors be worried?

Experts believe that investors should embrace the new normal and be prepared to conduct heavy due diligence and fundamental analysis on Chinese tech firms of interest, after companies like Didi Global (Didi) and Ant Group ran afoul of Chinese regulators in recent months.

"In the short term, we should certainly see a pull-back in the number of Chinese high-tech or big-data-related companies listing in the US as the China government hammers out its policy,” said Patrick Springer, managing director of institutional securities at Huatai Securities USA.

“Given the substantial price declines we are seeing in China tech stocks due to China’s re-regulation of the sector, it is not a positive point for the perception of the country’s leadership in global technology, so that will need to be kept in mind," he said.


On July 7, Chinese ride-hailing firm Didi saw its stock price open nearly 25% lower on the New York exchange, shortly after its $4.4 billion initial public offering (IPO). A few days prior on July 4, the Chinese government had ordered the removal of the company's platform from the country’s app stores.

Meanwhile, the State Council announced it would be applying stricter supervision on Chinese firms listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security; crack down on illegal activity in the securities market; and punish fraudulent securities issuance, market manipulation, and insider trading, according to the State Council statement.

Patrick Springer,
Huatai Securities USA

Springer does not currently see any major impact on China investment flows in the US IPO market for American Depository Receipts (ADRs). "On July 7, for example, foreigners were net buyers of China mainland stocks valued over $670 million, which is more than two times the daily average that we have seen year-to-date. Asset allocators are still clearly looking at the total China securities market for excess return opportunities," Springer said.

Andy Budden, investment director at the $2.38 trillion US-based asset manager Capital Group, told AsianInvestor during a July 7 media briefing that investors should be thinking quite carefully about such incidents.

“We are clearly in an era where Chinese authorities are thoughtfully regulating the technology and internet industry – that seems to be a reasonable thing to do on a relatively young industry,” Budden said. He does not think such pressure from regulators are going away anytime soon, and investors should be putting more efforts into fundamental analysis over their investments.

Ben Powell, chief investment strategist for Asia Pacific at BlackRock Investment Institute, spoke on a July 8 online press roundtable that such incidents are expected to be on-going in all parts of the world for years to come. China is getting serious on its anti-monopoly efforts, and Powell noted that other big tech names could be affected.


After pulling Didi from Chinese app stores on July 4, China’s Cybersecurity Administration on July 5 said that it was also investigating online recruiter Boss Zhipin, and truck-hailing app Full Truck Alliance, after their listings on the US stock market last month. Both firms operate with a significant amount of private user data.

Many tech companies are growing at a fast pace that is not necessarily matched by their internal legal and compliance teams, according to Xia Hailong, a lawyer at Shanghai-based Shenlun Law.

From Ant Group to Didi, pressure from regulators could be imposed at any time on any firm, and investors should be ready for this new normal.

Investors are suffering unexpected losses following Didi’s long-awaited IPO, and the firm is currently being sued by US shareholders after a crackdown by Beijing triggered a slump in its share price.

The lawsuits, which were filed in federal court in New York and Los Angeles on July 6, allege that Didi failed to disclose ongoing talks it was having with Chinese authorities on compliance with cybersecurity laws and regulations. The complaints named Didi's chief executive officer Will Wei Cheng and several other executives and directors. The lead underwriters for the company's share sale – investment banks Goldman Sachs, Morgan Stanley and JPMorgan Chase – were named as defendants.

Jason Hsu,
Rayliant Global Advisors


Jason Hsu, CIO at US-based Rayliant Global Advisors, told AsianInvestor that compared to Ant Group, the Didi incident is “relatively minor”.

Global investors are connecting the two incidents together and are speculating on the government’s intention, he said. Hsu noted that Didi has a cybersecurity problem while Ant Group is facing a business re-structuring issue, which are two totally different cases.

He added that even if the US bourse remains welcoming, Chinese regulators have the right to conduct checks on local firms listed abroad.
Whatever one’s view of China, investors must conduct solid analyses before pouring money into investments, he said.
Xia Hailong,
Shenlun Law


“The route is clear. From financial firms to lifestyle-focus firms, the government is cleaning up the tech sector,” Xia said, adding that e-commerce and food delivery firms are some platforms investors should be carefully inspecting.

Powell believes smaller tech firms will be subjected to less supervision, while big names are at higher risk of being in the spotlight. This view was echoed by top Chinese regulators. 

"Ant Group is not the only company that engages in monopolistic behaviour. In fact, there are other payments companies in China with similar misconduct issues," said Fan Yifei, deputy governor of the People’s Bank of China (PBoC), during a media briefing on July 8.

According to Fan, the PBoC will continue to support the payments industry in its growth while simultaneously cracking down on any misconduct or malpractice in the sector.

Fan added that actions taken against Ant Group could also apply to other payments platforms engaging in malpractice. 

In April this year, China's State Administration for Market Regulation (SAMR) launched an antitrust probe against Hong Kong-listed food delivery platform Meituan.

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