Despite Didi’s $1.2 Billion Fine, Chinese Tech’s Regulatory Troubles May Not Be Over

The logo of Chinese giant Didi’s app is seen on its navigation map displayed on a mobile phone in this illustrative photo taken July 1, 2021. REUTERS/Florence Lo/Illustration

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HONG KONG/BEIJING, July 22 (Reuters) – China’s $1.2 billion fine on Didi Global puts an end to the ride-hailing company’s regulatory troubles, but retroactive enforcement and lack of clarity on the company’s recovery show the worst for its tech sector may not be over.

Beijing’s launch of a cybersecurity probe just over a year ago into Didi was part of a broader and unprecedented crackdown on antitrust and data violations, among other issues, that targeted some of the best-known Chinese companies such as Alibaba Group (9988.HK) and Tencent Holdings (0700.HK).

The crackdown has stripped hundreds of billions of dollars from the market capitalization of its tech companies, caused layoffs at several companies, made them reluctant to pursue new opportunities and even led to corporate downsizing, as companies were looking to comply with the new rules.

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Authorities have in recent months softened their tone on the crackdown as they seek to stimulate an economy hit by COVID-19 containment measures, and the investigation into Didi was among the cases closely watched for results. clues as to how this might unfold.

But Didi’s fine, announced on Thursday, and the penalties imposed on its two top executives, were close to the maximum allowed under the country’s Personal Information Protection Act (PIPL). And although the law was passed just nine months ago, the Cyberspace Administration of China (CAC) said Didi had been found guilty of violations dating back seven years.

The regulator also hasn’t mentioned whether it will allow Didi’s apps to re-enter app stores or resume registering new users. Read more

If the fine was much lower, like 1 billion yuan ($147.80 million), “it might have boosted some of our confidence,” an executive at a Chinese tech giant said, declining to comment. to be named, citing the sensitivity of the case.

Alfredo Montufar-Helu, director of Asia Insights at research group The Conference Board, said many Chinese tech companies would likely have been alarmed by the PIPL’s retroactive application.

This, combined with the reality of China’s rapidly changing regulatory framework – aside from the PIPL, the country has introduced new and amended cybersecurity and data security laws – meant that many risked being judged not to be. compliant, he said.

“It will be more and more burdensome for internet companies. Other than obeying the CAC’s orders, there is no other way for internet companies,” said You Yunting, senior partner at the Shanghai law firm. FromBund.

The CAC did not immediately respond to a request for comment on Friday.

NO RELAXATION

Beijing launched a crackdown on its huge homegrown tech sector at the end of 2020 as part of a campaign to tighten control over large swathes of its economy as it braced for Chinese President Xi Jinping to get an unprecedented third term in office later this year.

Regulators said their intention was to ensure the healthy development of the industry.

The end of the Didi investigation follows a series of meetings this year in which authorities said they wanted to boost political support for parts of the economy, including internet platforms, and the end of a nearly nine-month freeze on game approvals.

China’s tech executives, however, said policies aimed at boosting confidence in the sector had yet to roll out and that they had accepted changes in the industry’s playing field would be permanent.

A gambling official pointed out that even if gambling license approvals had resumed, it looked like the number of licenses would be around 700 each year, down 30% from around 1,000 before the crackdown. At the peak of the industry, 9,369 licenses were granted in 2017.

“I don’t think the regulations will be any more relaxed. We consider this a victory if it does not get worse,” he said.

($1 = 6.7660 Chinese yuan renminbi)

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Reporting by Josh Ye, Eduardo Baptista and Yingzhi Yang; Written by Brenda Goh; Editing by Muralikumar Anantharaman

Our standards: The Thomson Reuters Trust Principles.

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