China has fined ride-hailing group Didi Chuxing Rmb8bn ($1.18bn) and hit its founders with additional penalties over “serious” and “vile” breaches of the country’s data security laws.
The Cyberspace Administration of China probe has devastated the Chinese technology group’s business and forced it to delist from the New York Stock Exchange roughly a year after its $4.4bn blockbuster IPO last June.
The unprecedented investigation into Didi came as part of Beijing’s sweeping regulatory crackdown on the tech sector, leading to a reckoning on Wall Street about investing in Chinese companies and marking a setback for SoftBank’s Vision Fund, Didi’s largest shareholder.
The fine is expected to pave the way for Didi to resume normal operations and eventually list in Hong Kong, according to analysts. The company’s shares currently trade over the counter in the US.
CAC said on Thursday that Didi had grossly violated the country’s data collection laws and “seriously impacted national security” with its data processing activities. It said it could not make the details of those violations public.
The regulators said the company had “maliciously evaded supervision” and that its probe had unearthed “conclusive” evidence of Didi’s violations of three separate laws related to data security.
“The circumstances are serious and the nature is vile,” CAC said.
While CAC did not specify whether the probe had concluded, analysts said the fine marked a turning point for the group.
“Didi is in the clear,” said Li Chengdong, head of internet think-tank Haitun in Beijing. “Punishment means the investigation has reached a clear conclusion and its apps can go back into app stores.”
CAC said Didi founder and chief executive Cheng Wei and president Jean Liu were ultimately responsible for the violations and fined both executives an additional Rmb1m each.
The regulator published details of Didi’s transgressions not deemed sensitive for national security, including illegally collecting upwards of 11mn screenshots from users’ photo albums. It also highlighted excessive collection of personal information including facial data, age and occupation.
Didi said it “sincerely accepted” the regulator’s penalties and thanked CAC for the “inspections and guidance” in a social media post.
The Rmb8bn fine represents about 4.6 per cent of Didi’s sales last year and about 14 per cent of the cash and short-term investments on its balance sheet as of December 31. Didi reported an operating loss of Rmb8.1bn in the final three months of the year.
The fine is less than the record Rmb18.2bn levied on Alibaba for antitrust violations last year but more than the Rmb3.4bn fine for food delivery group Meituan. The antitrust fines were handed out by a different regulatory body, the State Administration of Market Regulation.
“The fine is expected and marginally positive news for the tech sector as the regulatory crackdown seems to have reached a peak,” said Chen Long, partner at Plenum, an independent research company in Beijing.
Long added there was still “uncertainty” surrounding tech companies because of “so many lingering issues such as the audit talk and delisting possibilities for more ADRs [American Depository Receipts]”.
Didi has been unable to sign up new users during the probe, shrinking its revenues, widening losses and forcing the company to lay off swaths of its workforce. For months, Chinese officials from a handful of agencies, including the public security bureau, were stationed in Didi’s Beijing offices.
The turmoil at Didi has left US investors with large losses, with its stock price collapsing more than 75 per cent from its listing price of $14 a share.
Additional reporting by Nian Liu in Beijing and Cheng Leng in Hong Kong
