Didi’s Secrets Risk China's Wall Street Future

(Bloomberg Opinion) -- (This column was originally published on Nov. 29. Today, DiDi Global Inc. announced that it's preparing to delist from the U.S. and debut in Hong Kong.)

A possible delisting of DiDi Global Inc. at the behest of Beijing risks repercussions well beyond the fortunes of those who bought into the Chinese ride-hailing company. Tech companies from Tencent Holdings Ltd. and SoftBank Corp. to asset managers BlackRock Inc. and Vanguard Group need to be prepared.

In using national security as an excuse to reverse Didi's June offering in New York, regulators are signaling that any company in China could be forced to remove its shares from foreign bourses. Management may take Didi private, or the firm could list in Hong Kong before being removed from the world's largest stock exchange, Bloomberg News reported last week. 

Didi's reams of data may be seen as a pretext for punishing its decision to go ahead with the share sale before getting clear approval from Beijing. But U.S. companies like Palantir Technologies Inc., Lockheed Martin Corp. and Boeing Co. collect and keep some of that nation's most sensitive secrets while managing to publicly trade their shares without spilling information. 

What's more, China won't allow its companies to be subject to audit in the U.S., so there's even less likelihood a car-hailing company would leak data that's anywhere close to being as sensitive as what's held by American defense contractors. Beijing's concept of “secrets” means that almost every business in the country could be subject to its constraints.

“China has a very expansive definition of state secrets such that basically any transaction with a state owned enterprise in China is considered to be a state secret,” Paul Gillis, a professor of accounting at Peking University in Beijing, told Bloomberg's Talking Tax podcast. “My mobile phone bill is technically a state secret.”

In that light, Alibaba Group Holding Ltd. or JD.com Inc., which run commerce, logistics and cloud-computing businesses might one day be judged as handling sensitive data. While it may currently seem inconceivable that Chinese companies as large as those would be forced to halt their long-standing overseas listings, should it happen, global shareholders — from day traders to the biggest fund managers — could be hit hard by a seismic shift in assets from the U.S. to China, or possibly into private hands.

More likely is the possibility that as yet unlisted companies will have their Wall Street dreams taken away. Lifestyle content provider Xiaohongshu, which counts Tencent among its investors, already put its U.S. plans on hold due to the need for a cybersecurity review and has since started weighing a Hong Kong debut, Bloomberg News reported in October. Horizon Robotics Inc. and audio startup Ximalaya Inc. have also revised their overseas plans, Bloomberg has reported.

There's also ByteDance Ltd., the world's largest unicorn according to research firm CB Insights, and one of the many Chinese companies invested by SoftBank's Vision Fund. The owner of short-video platforms TikTok and Douyin and news aggregator Toutiao may one day be considered to hold data just as sensitive as what's collected by Didi. 

Such a designation would be a blow to any investor holding shares in Chinese startups because taking away all foreign stock markets necessarily reduces the pool of funds their investees could tap in an IPO. And venture capitalists locked into accepting only Chinese bourses for an exit will likely balk at funding such a startup, or only do so at much cheaper valuations. SoftBank and Tencent may be among the hardest hit since the former has 19% of its Vision Fund assets in China, while the latter increasingly relies on its portfolio of investments to boost earnings amid a slowdown in its games and social media businesses.

But they won't be alone. The shadow of China's broad interpretation of national security is now cast over all foreign-listed stocks, and every single investor who holds a stake in them.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

©2021 Bloomberg L.P.