China tightens its grip on tech-based firms, threatens compliance deadlines

Summary

  • China has threatened that compliance deadlines would be imposed on companies like Didi Chuxing.
  • The Chinese authorities would increase oversight of the on-demand trucking and ride-hailing companies such as Didi Global Inc and Full Truck Alliance Co.
  • The transport ministry said that everything would be done to support the cyberspace probe.

China has toughened its noose around ride-hailing platforms like Didi Chuxing for specific issues and have also threatened that compliance deadlines would be imposed. The Ministry of Transport, which is main regulator of the ride-hailing industry in the country, is conducting a cybersecurity investigation into the company, along with seven ministerial bodies.

The Chinese authorities would increase oversight of the on-demand trucking and ride-hailing companies such as Didi Global Inc and Full Truck Alliance Co, widening a campaign by Beijing to control its internet sector. In a statement, the Transport Ministry said a few tech companies were disrupting competition and operating irregularly at present.

According to the minutes of a meeting conducted by an inter-ministerial body, the transport ministry said that every effort would be taken by the ministry for supporting the cyberspace probe. The inter-ministerial body is working on bringing out policies for governing new kinds of transport services. The inter-ministerial meeting was chaired by transport minister Li Xiaoping.

The Chinese government wants these companies to ensure rights of drivers, strengthen data security, and remove illegal cars and drivers. If regulations force Didi to pay higher fees to drivers, its profit from domestic mobility could shrink.  

The meeting concluded that deadlines must be imposed on ride-hailing platforms to weed out non-compliant drivers and vehicles and drivers. If implemented, this could hit Didi hard. As of June, only 30 per cent of its vehicles in service met regulatory requirements.

Tech shares are being sold off fueled by scrutiny over the tech sector as investors are trying to gauge the extent of Beijing’s regulatory tightening. The Chinese government prohibited its tutoring industry from raising capital or making profits. It was soon followed by the Ministry of Industry and Information Technology’s decision to rein in online illegal behaviour. Regulators have also asked food delivery platforms to ensure workers got paid the local minimum wage at least, adding further to the uncertainty.

The Internet Society of China, on behalf of MIIT, asked 12 internet giants, which included Tencent Holdings and Alibaba Group to increase data security protections, including fixing of the issue of export of key information. In a statement, the Politburo said it was committed to bring about tighter supervision of the listing of shares overseas.

Didi chose a New York listing as rules were much more flexible and it also believed that a market familiar with Uber Technologies would be able to give it a better valuation. The Hong Kong exchange questioned whether the company was compliant with Chinese regulations. It pointed out that Didi did not have required licenses to run operations in a few cities and several of their drivers did not own a household registration in the cities they lived, which is a mandatory under municipal requirements to operate ride-hailing services.

Comment


Disclaimer