BEIJING/HONG KONG (Reuters) -Didi Global’s shares fell more than 10% in New York on Friday after China’s cyberspace agency said it had launched an investigation into the Chinese ride-hailing giant to protect national security and the public interest.
The Cyberspace Administration of China (CAC) said on its website that Didi was not allowed to register new users during its investigation, which was announced just two days after Didi began trading on the New York Stock Exchange.
Beijing-based Didi said in a statement to Reuters that it planned to conduct a comprehensive examination of cybersecurity risks and would cooperate fully with the relevant government authority.
In a filing, it said that apart from the suspension of new user registrations in China, it was operating normally.
Chinese internet regulators have tightened rules for the country’s tech giants in recent years, asking companies to collect, store and handle key data properly.
The cyberspace agency did not offer details about its investigation into Didi, but said the investigation was also to prevent data security-related risks, citing China’s national security law and cybersecurity law.
Didi, which offers a wide range of services in China and over 15 international markets, gathers vast amounts of real-time mobility data every day. It uses some of the data for autonomous driving technologies and traffic analysis.
Didi laid out related regulations in China in its IPO prospectus and said, “we follow strict procedures in collecting, transmitting, storing and using user data pursuant to our data security and privacy policies.”
Two investors, however, told Reuters that company executives did not discuss possible cybersecurity regulation with investors at the call they joined for Didi’s IPO roadshow.
Didi’s shares fell as much as 10.9% after the open and were down 7% at 1335 GMT.
“Didi does seem to be attracting a lot of regulatory pressure. The near-term impact depends a lot on how long a review lasts, but Didi has a large enough base that we aren’t going to change our forecasts yet,” Redex Research analyst Kirk Boodry, who publishes on Smartkarma, told Reuters.
Adam Segal, a cybersecurity expert at the Council on Foreign Relations in New York, said while it was hard to know what was going on without more detail, “CAC has been looking at security of all large firms’ data as part of a crackdown on big tech”.
Didi, which raised $4.4 billion from its initial public offering (IPO), did not hold a celebration event for its market debut, an unusual move among Chinese companies.
Didi, founded by Will Cheng in 2012, has faced several regulatory probes in China over safety and its operation licence.
The company is also facing an antitrust investigation, revealed by Reuters in June, looking at whether Didi used anti-competitive behaviours to drive out smaller rivals. It said at the time that it would not comment on “unsubstantiated speculation from unnamed source(s)”.
Didi’s debut on Wednesday was the biggest US listing by a Chinese company since Alibaba Group Holding Ltd in 2014.
Didi had aimed to raise up to $10 billion through its IPO to value the company at $100 billion. However, investors were critical of the valuation target during meetings ahead of the deal’s launch which pushed its size down.
Didi is also backed by technology investment giants including SoftBank Group, Alibaba, Tencent and Uber.
China’s cyberspace agency announced on Friday it had launched an investigation into Didi to protect national security and the public interest, just two days after the company began trading on the New York Stock Exchange.
A senior company executive said on Saturday that Didi Global Inc stores all China user and roads data at servers in the country and it is “absolutely not possible” that the company passed data to the United States.
Didi Vice President Li Min also said the company would sue any social media users who said the company transferred data during its recent initial public offering (IPO) process after claims were made on China’s Twitter-like Weibo platform.
News of the Cyberspace Administration of China (CAC) probe, and the agency’s decision to block Didi from registering new users during its investigation, knocked 5% off Beijing-based Didi’s shares on Friday.
“Like many overseas-listed Chinese companies, Didi stores all domestic user data at servers in China, it is absolutely not possible to pass data to the United States,” Li said in a post on Weibo.
Didi, which offers services in China and more than 15 international markets, gathers vast amounts of real-time mobility data every day. It uses some of the data for autonomous driving technologies and traffic analysis.
“I’m not sure what the final implications might be but regulatory crackdown has been an ongoing concern even before the listing, with Didi already having been called in by the regulators twice,” said Sumeet Singh, Aequitas Research director who publishes on Smartkarma, told Reuters on Saturday, before Li’s post.
“This time stopping the company from taking in new users shouldn’t hurt a whole lot since the company already has 80% plus market share to begin with, as long as its not extended for a period of time.”
The cyberspace agency did not give any indication of how the long the investigation would last or provide any other details.
Didi said on Friday it planned to conduct a comprehensive examination of cybersecurity risks and would cooperate fully with the relevant government authority. It also said apart from the suspension of new user registrations in China, it was operating normally.
(Reporting by Tony Munroe and Yilei Sun in Beijing; Julie Zhu, Scott Murdoch and Kane Wu in Hong Kong: and Subrat Patnaik in Bengaluru; Editing by Jane Wardell, Sumeet Chatterjee, Andrew Heavens, Arun Koyyur, David Clarke and Louise Heavens)