EXCLUSIVE How Didi’s government relations team navigated a myriad of regulators, until the IPO ended
- Many Didi thought the team would be able to “convince” the officials
- Only 20-30% of Didi’s activities in China are fully compliant with the rules
- The team relied on personal relationships with those responsible for the watchdog
- Didi stock down 21% since its New York debut on June 30
HONG KONG, July 20 (Reuters) – Didi Global (DIDI.N) has successfully navigated China’s regulatory thicket for years, but the reliance of the tourism giant’s more than 200 government affairs teams on Personal contact with officials has partially exposed him to a shock crackdown by Beijing, sources say.
The firepower of government relations, which has helped keep Didi on the road despite security scandals and the lack of operating permits in many cities, has failed to fully anticipate just how badly the regulatory environment is. changed as the company progressed with a $ 4.4 billion New York list last time around. month.
As a result, when the powerful Cyberspace Administration of China (CAC) launched a review of Didi’s handling of customer data in the midst of its IPO campaign, many in the company believed the team would be able to “convince” surveillance officials, sources familiar with the case said.
Just two days after its New York debut, ACC announced an investigation into China’s leading ridesharing company and subsequently ordered its downloadable apps in China to be removed. Read more
Beijing on Friday announced that officials from at least seven departments, including the CAC, the Ministry of Transportation and the State Administration for Market Regulation (SMAR) were conducting an on-site cybersecurity review of Didi. Read more
Didi, who has said on Weibo that he accepts and will firmly comply with requests from relevant authorities to review and rectify the issues, did not respond to a request for comment from Reuters.
Since late last year, China has moved at lightning speed to subdue the giants of its so-called platform economy, which had taken advantage of an often permissive regulatory environment to achieve what the media said. State have called it “barbaric” growth.
Didi has become the largest and most successful carpool player despite not being in full regulatory compliance in some of its operations in China.
Two sources said only 20-30% of Didi’s business in China was fully compliant with regulations requiring three permits: one for the company to provide online ridesharing services, a transport permit for the vehicle, and a permit. for the driver.
In June, the proportion of compliant vehicles among the entire fleet taking orders on the Didi platform was 30.7%, while driver compliance was 45.2%, according to the Ministry of Transport.
In its IPO prospectus, Didi said it has obtained carpooling activity permits for cities that collectively made up the majority of the total commute. He did not specify.
Didi also managed to continue operating in Shanghai without a platform permit and with many of its drivers not having the required local hukou, or household registration permit, two separate sources said.
Didi did not respond to questions regarding its operations and operating licenses in Shanghai. The Shanghai municipal government directed Reuters’ request to the transport commission, which did not immediately respond.
All sources declined to be named because they were not authorized to speak to the media.
Didi shares have fallen 21% since their debut on June 30, wiping out $ 14.2 billion from market value.
RELYING ON ‘GUANXI’
Chinese tech companies have stepped up hiring of compliance, justice and government relations officials in recent months as they prepare for Beijing’s unprecedented crackdown on antitrust and privacy violations customer data. Read more
The crackdown has highlighted the role played by government relations teams, made up of former government officials, in their quest to master regulatory directives that are not always formally communicated.
Didi and his government relations (GR) team came under close scrutiny after two cases of rape and murder in 2018 involving company drivers.
“Since 2018 the GR team has grown into a super powerful team at Didi,” said another. “Whenever the GR team has conflicts with other teams on the commercial side, it’s usually the other teams who end up making the concessions.”
In the run-up to the IPO, the team came under pressure from senior management to push back regulatory controls and, in turn, relied heavily on “guanxi,” or personal relationships. , two of the sources said.
The ACC, fully aware of Didi’s listing plan in the United States, had considered whether it was possible that some of the company’s data could end up in the hands of a foreign entity given Beijing’s sensitivity to it. use of onshore data, the sources said. “What makes Didi more important than any other Internet company is because Didi has real-time data on the geographic location of each user. You can identify a person’s location simply by using a cell phone number, ”one said.
Didi, which has approximately 377 million annual active users and 13 million annual active drivers in China, offers 25 million trips per day in the country to users who register through an app using a phone number and password. past.
Didi, backed by SoftBank (9984.T), Tencent (0700.HK) and Alibaba (9988.HK), also records video and recordings with onboard cameras for at least seven days, which the watchdog says , could be dangerous if leaked, said another.
Reporting by Julie Zhu in Hong Kong and Zhang Yan in Shanghai; Editing by Sumeet Chatterjee & Shri Navaratnam
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