Two days later the regulator ordered Didi’s mobile app to be pulled from app stores in China, halting new customers from joining the service . Thealleges that Didi was illegally collecting and using personal data. Didi said that it would “strive to rectify any problems” but warned of “an adverse impact on its revenue in China”. Predictably, the ban also adversely affected the company’s market value. When American markets reopened on July 6th, Didi promptly shed more than a fifth of it.
Besides regulating what corporate data can and cannot be shared with foreigners, the new rules would target “illegal securities activities” and create extraterritorial laws to govern Chinese firms with foreign listings. According to Bloomberg, a news service, Chinese regulators also want to restrict the use of offshore legal structures that help Chinese companies skirt local limits on foreign ownership.
Nearly all Chinese tech giants listed in America, including Alibaba, a $570bn e-merchant, as well as Didi, use such “variable-interest entities” . Ais domiciled in a tax haven like the Cayman Islands, and accepts foreigners as investors. It then sets up a subsidiary in China, which receives a share of the profits of the Chinese firm using the structure.
American regulators have long sought to force Chinese companies listed on America’s bourses to submit auditing documents to an oversight body called the Public Company Accounting Oversight Board. In December Congress passed a law that would require such disclosures with bipartisan support. At the same time, Chinese regulators have refused to permit Chinese companies to make such disclosures, declaring auditing documents to be state secrets.
As the symbiotic relationship between Chinese firms and American investors unravels, both will suffer. The former are losing access to the world’s deepest capital markets, the latter to some of its hottest stocks.
The usual Vomit-inducing news from the usual Vomit-inducing place.