It’s inevitable to see selling from investors who had been pinning their hopes on Didi,” said Tomoichiro Kubota, a senior market analyst at Matsui Securities Co. in Tokyo. “If it’s deleted from app stores, it’ll be a very difficult situation.”
China’s cyberspace regulator announced the Didi ban on Sunday, just two days after revealing a review of the company. The decision effectively requires the largest app stores in China to strike Didi from their offerings, though the current half-billion existing users can continue to order up rides and other services. Didi said the regulatory move may have “an adverse impact” on its revenue in China.
On Monday, regulators expanded the probes further to target Full Truck Alliance, which runs an Uber-like platform for truck-hailing, as well as Kanzhun Ltd. Full Truck Alliance, backed by Tencent Holdings Ltd. as well as SoftBank, raised $1.6 billion in its U.S. offering last month.
The Vision Fund was bloodied by the failure of WeWork. Since then, Softbank has since been eager to accelerate the pace of IPOs for the companies it invested in. Didi is a big one and there was no way they could risk missing out on a pay day.
Two weeks ago, the Chinese regulator warned Didi not to pursue its IPO. It appears large investors like Softbank and Uber pressured the company to file over the Communist Party centenary celebration to take advantage of a lull in regulatory enforcement. In doing so the company raised $4.4 billion in cash, achieved a valuation in excess of $70 billion and was promptly banned from Chinese app stores.
This is a symptom of the wider trend in Chinese regulation. All data is now considered state owned. Businesses that exist on the internet and which are deemed to have too much potential to threaten Party authority will be cut back to size.
That deeply questions the rationale for investing in Chinese growth. If there are limits on how large a company can get, then valuations have to be a lot more conservative. That’s the polar opposite of what investors are accustomed to when investing in Silicon Valley startups.
The only way to invest in China is in state sponsored growth targets. Today, that’s semiconductors and biotech and not much else.Back to top