Following the Chinese government’s political crackdown on major companies like Alibaba and Tencent by interfering with their IPO plans, DDT became a new target when it raised $4.4 billion in a public offering on the U.S. stock market on June 30, the largest Chinese IPO since Alibaba Group went public in the U.S. in 2014. IPO case. On July 2, China’s Internet Information Office announced that in order to “prevent national data security risks, safeguard national security and protect the public interest,” it would conduct a review of DDT’s network security. It ordered DDT to suspend new user registrations and take down 25 software models, including DDT Enterprise Edition. This series of blows led to a 20% drop in DDT’s share price and the evaporation of $14 billion in market value. This shocking news for both domestic and international markets has its own many messages about China’s policy changes to discuss, but from another perspective, it is also the U.S. investors and the U.S. government that need to learn from this incident.
Why is that? First of all, the success of the IPO of DDT in the U.S. shows that many investors in the U.S. and on Wall Street are still bullish about the Chinese market, or still have high expectations that they can continue to get a piece of China’s economic growth. Obviously, the dependence on China’s economic development is still deeply rooted in the minds of American investors. In my opinion, this is a very dangerous idea. Not to mention that Sino-US relations have entered a high-risk zone since the outbreak of the epidemic, and investors should be more vigilant about the practice of using large foreign companies as a political weapon to counterbalance the US or retaliate against the US; it seems that US investors are still too optimistic about the prospects of China’s economic development, or are unable to penetrate the fog of surface figures and see the huge risks lurking. The “DDT” incident has actually shown that China has become a high-risk area for investment, which is a lesson U.S. investors should learn.
Second, the Chinese government’s punishment of “DDT” for various political considerations, which led to significant economic losses for U.S. investors within a few days, should serve as a wake-up call to the relevant U.S. regulators who approved the listing of Chinese companies in the United States. For a long time, the SEC has not been careful in auditing the listing of Chinese companies, and the threshold is not high, on the grounds that everything is done according to market standards and Chinese companies should be treated the same as those from other countries. This certainly sounds like the embodiment of a strict market spirit and the principle of the rule of law, but should such a principle and law not also make some adjustments to the actual situation in order to protect the interests of American investors?
The reality is that it is impossible to guarantee the 100% pure economic behavior of private or state-owned enterprises, whether they come from China. Behind these enterprises, there is a huge, visible government hand at work. The CCP does not only use economic considerations to regulate large enterprises, but also many political considerations, and the interference of such political factors is now becoming more and more obvious and serious. Therefore, Chinese companies going public in the U.S. must not be treated simply by the uniform standards of the market economy, and policies must be revised to improve the risk assessment criteria for Chinese companies going public, taking into account the overall policy changes in China. If China continues to treat China as a market economy in the face of increasing political control and interference in recent years, it is not only a matter of naivete, but will also result in the interests of U.S. stock investors not being more strictly protected, a lesson the U.S. government should learn from the “DDT” incident. This is a lesson that the U.S. government should learn from the “DDT” incident.