What Didi's US exit tells us about China and Wall Street

Less than a year after its US market debut, Chinese ride-hailing giant Didi Global is set to leave Wall Street.

A majority of shareholders voted on Monday to stop trading the firm's shares via the New York Stock Exchange.

The company says the delisting is key to completing a cybersecurity review to relist in Hong Kong and resume normal operations in China.

The move comes as China's major technology companies face intense scrutiny at home and abroad.

Beijing has been pursuing a wide-ranging crackdown on the industry, from slapping e-commerce firm Alibaba with a record fine to ordering social media giant Tencent to suspend the roll out of new apps.

It ordered Didi to be removed from app stores last year and launched an investigation, citing data collection concerns, days after the firm moved forward with its New York listing, reportedly against authorities' wishes.

In recent weeks, faced with slower economic growth, regulators' attitudes have appeared to be softening with the country's Vice Premier Liu He saying to tech executives that the government supports the development of the sector.

But Washington has also been pushing for more accountability from Chinese companies. The US market regulator, the Securities and Exchange Commission (SEC), last year finalised rules to remove firms from US stock exchanges if they do not make their auditors' books open to inspection.

They will also have to disclose whether they are owned or controlled by a government entity.

The SEC has said it has the same requirements for all US-listed foreign companies and of the more than 50 jurisdictions it has worked with to gain access to firms' accounts only two have failed to comply: China and Hong Kong.

"It is a legitimate request to make sure that their accountings are credible and would not hurt investors," said Nina Xiang of China Money Network. "But the devil is in the details. Chinese regulators want to know what kind of auditing will be done and if it means sensitive data can be passed onto the US government."

Companies like Didi are caught in the middle of the clash.

As of 31 March 2022, there were 261 Chinese companies listed on America's three biggest stock exchanges, with a total market value of $1.4tn (£1.1tn), according to the US-China Economic and Security Review Commission.

Investors are now weighing the risk of them getting kicked off those exchanges.

"All the Chinese tech giants are walking on eggshells," said Edith Yeung, a partner at Race Capital.

Didi's US delisting is also a sign of the impact of the new personal data laws in China, as Beijing aims to keep information on individuals' locations and movements from falling into what it sees as the wrong hands.

Last year, China introduced two new pieces of security and privacy legislation - the Data Security Law (DSL) and the Personal Information Protection Law (PIPL).

The DSL classifies data collected and stored in China based on its potential impact on Chinese national security and regulates its storage and transfer.

The PIPL regulates the protection of personal information. It is modelled on the European Union's General Data Protection Regulation (GDPR), which is a set of legal guidelines for the collection and processing of personal information from individuals.

The rules have meant that companies like Didi - such as Bytedance, owner of popular video sharing app TikTok or van-hailing and courier services firm Lalamove, which also handle data about locations and movements - are unlikely to list in the US.

"For ByteDance, the only way for them to list is in Hong Kong," said Ms Yeung.

Ms Xiang said if Chinese companies can no longer list in the US "it will have a devastating impact on China's innovation ecosystem and future development".

New York is home to the world's two biggest stock exchanges, with companies worth a total of more than $50tn listed on the NYSE and Nasdaq. In comparison, all the shares on the Shanghai and Hong Kong exchanges amount to just a quarter of that amount.

"The overseas-listed Chinese companies are not only getting money from American investors. They are also getting accustomed to international governance standards, best practices in disclosure and investor protection, and how to be a responsible member of the global investment community," Ms Xiang said.

Experts are split over the future of Chinese companies on US financial markets.

Some, like Ms Yeung, believe there is still hope that companies from mainland China and Hong Kong could sell shares on US markets.

But even if Washington and Beijing could reach a compromise, few expect a return to the heyday seen between 2017 and 2019, when dozens of Chinese companies listed the US.

All of this, Ms Xiang said, has the potential to create a perfect economic storm: "If not handled properly, this could be the beginning of a significant financial decoupling."

As Didi bids farewell to Wall Street, we may look back at this moment as part of a growing fault line between the world's two biggest economies.