China fines Didi Global $1.2 billion for violating data security laws

By Julie Zhu, Yingzhi Yang and Kane Wu

HONG KONG/BEIJING (Reuters) -China’s cybersecurity regulator on Thursday fined Didi Global Inc $1.2 billion, concluding a probe that forced the ride-hailing leader to delist from New York within a year of its debut and made foreign investors wary about China’s tech sector.

Didi ran afoul of the Cyberspace Administration of China (CAC) when it pressed ahead with its U.S. stock listing even though it was urged to wait while a cybersecurity review of its data practices was conducted, sources previously told Reuters.

The CAC said its investigation found Didi had illegally collected millions of pieces of user information over a seven-year period starting June 2015, and carried out data processing activities that seriously affected national security.

It fined Didi 8.026 billion yuan ($1.2 billion) and, in an unusual move, said founder and Chief Executive Cheng Wei and President Jean Liu were responsible for the violations, and imposed penalties of 1 million yuan each.

“Didi’s violations of laws and regulations are serious … and should be severely punished,” it said.

Didi, backed by investors including U.S. peer Uber Technologies Inc and Japan’s SoftBank Group Corp, in a statement on its Weibo account said it accepted the CAC’s decision and would conduct comprehensive self-examination and rectification.

The regulatory action against Didi was part of a wider and unprecedented crackdown by authorities for violation of antitrust and data security rules, among other issues, targeting some of China’s best-known corporate names.

Authorities have in recent months changed their tone toward the crackdown as they seek to boost an economy hurt by COVID-19 containment measures. The shift has raised hope for companies and investors that the worst is over, though jitters remain.

Chinese technology stocks rose after the Didi announcement, with the Hang Seng Tech Index rising over 1% in afternoon trade.

“The fine should mark the end of Didi’s regulatory troubles,” said analyst Travis Lundy at Quiddity Advisors who publishes on research platform Smartkarma.

“If there were more, they’d have waited until those were understood and addressed to levy the fine,” he said, adding the development should allow Didi to move toward listing in Hong Kong.

Didi, which delisted from New York last month, previously aimed to list in Hong Kong by June. It put such plans on hold indefinitely after failing to win approval from Chinese regulators, Reuters has reported.

APP RELAUNCH

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

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

The CAC announced its inquiry into Didi shortly after its New York debut on June 30, 2021. It also ordered app stores to remove 25 apps operated by Didi and told the firm to stop registering new users, citing national security and the public interest.

The regulator did not say in its Thursday statement whether it would allow the apps to return to app stores or allow new user registration.

Didi previously said it would need to apply for the apps to be restored and three sources told Reuters that the company has updated the apps to ensure they were compliant once a relaunch was allowed.

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

A Didi investor, who was not authorised to speak with media and so declined to be identified, said the fines should conclude the CAC’s investigation into Didi so the company should be allowed to resume its apps and normal businesses.

The restrictions have hit Didi badly, chipping away at its dominance and allowing rival ride-hailing services operated by automakers Geely and SAIC Motor Corp Ltd to gain market share.

Didi stock soared in the New York initial public offering, giving the company a valuation of $80 billion and marking the biggest U.S. listing by a Chinese firm since 2014. By the time of delisting, the stock had lost over 80% in value.

($1 = 6.7588 Chinese yuan renminbi)

(Reporting by Brenda Goh, Julie Zhu, Yingzhi Yang; Scott Murdoch, Zhang Yan amd Kane Wu; Writing by Sumeet Chatterjee; Editing by Muralikumar Anantharaman and Christopher Cushing)

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