DiDi Global (DIDI) Surges On WSJ Report That Chinese Govt To Ease Restrictions
2:41 pm Monday, June 06th, 2022
DiDi Global (DIDI) is surging today on a WSJ report that indicated that the Chinese government will conclude its cybersecurity probe of the ride-sharing giant, known as the Uber/Lyft of China. The article also reports that DiDi’s apps will be allowed back on app stores.
About a year ago, in July 2021, Chinese regulators, specifically the Cyberspace Administration of China (CAC), alleged that Didi’s app was collecting personal information in violation of relevant Chinese laws and regulations. The CAC notified app stores that they should take down the DiDi app in China and not allow new users to download the app. Existing users who had previously downloaded the app prior to the takedown were allowed to continue using it, and Didi’s service was allowed to continue.
Here is what we think is important to take away:
While the Chinese government allowed DiDi to continue to operate, its decision crimped DiDi’s ability to attract new customers. Investors are always focused on growth, so that restriction definitely placed a cloud over the stock. This report is clearly causing a big move in the share price today.
The Chinese government took action against several tech names. If just one company were being looked at, these probes may have seemed to have more legitimacy. However, that the government targeted so many makes us wonder if the crack down on big tech names in China was less about antitrust or personal data concerns.
The crackdown seemed a function of a government that likes to keep close control of its people, and it signaled to us that the government was growing concerned about the economic and social power of tech platforms, which may compete with the government’s power. This has made it risky to own Chinese tech names in the past year or two. Investors just did not know what development could come next at any time.
Why now? We think a key reason is to spur economic activity. The COVID lockdowns in Shanghai and other regions have hurt the economy; an interest in reversing the impact of those measures may be entering into its decision.
Overall, assuming the report is accurate, it is great news not only for DiDi, but it is wonderful for Chinese tech stocks generally, which have had a cloud over them for some time. If the government relaxes restrictions on DiDi, we think it may relax measures on others as well.
