China’s No. 1 online ride-hailing company, DDT, went public on the U.S. stock market on June 30, becoming the highest-funded Chinese company in the U.S. since Alibaba Group went public in 2014. A few days later, China’s State Internet Information Office suddenly announced that, based on reports and after testing and verification, the company had collected personal information in serious violation of the law, and therefore asked online application stores to take down its app software to “effectively safeguard the security of personal information of the majority of users.”
It usually takes time from the time an investigation is opened to the time the facts are identified and a decision is made. Chinese authorities did not explain why they could not let the public know that the authorities were investigating DDT before it went public, choosing instead to announce the penalties immediately after the company’s high-profile IPO, to the detriment of investors at large.
Immediately after the State Internet Information Office announced its decision to punish DDT, the company announced that it was suspending new user registrations and strictly following the authorities’ requirements to take down and rectify the situation. The company said this government decision may affect the company’s revenue. It’s unclear to what extent DDT was known to be under investigation by government authorities prior to the IPO but did not disclose that information to investors.
Brock Silvers, chief investment officer at Hong Kong-based securities firm Open Source Capital, was quoted by Bloomberg as saying, “It’s very unfair to investors. Because the integrity of the market is at stake, Chinese regulators should stop letting companies under investigation go public.”
As for the authorities’ punishment of DDT for protecting the security of personal information for a wide range of users, the Global Times, a subsidiary of the Communist Party’s organ, revealed in a commentary the real reason for the authorities’ actions.
In a commentary titled “Why the state’s demand for DDT to be taken off the market and rectified is deeply popular,” the Global Times said the state cannot allow Internet giants like DDT to become rule makers on the use of personal information, and that “standards must be in the hands of the state. The commentary said, “No Internet giant must be allowed to become a super database of personal information about Chinese people in greater detail than the state holds.”
This comes as Chinese authorities have also taken control of companies such as Alibaba and Tencent, which handle hundreds of millions of customer data every day.
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