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Didi ushers in new chapter in China-US rivalry as Beijing's tech crackdown evolves
16 July 2021 02:33
When China's Xinhua News Agency published a propaganda report back in the summer of 2015 praising civil servants for maintaining their diligence in the seasonal heat, few links were drawn between the report's reference to data originating from ride-hailing app Didi Chuxing and risks to China's national security. The data revealed rides to and from various government ministries, information that at the time wasn't seen as sensitive.
But as rivalry between China and the US revs up, from military and trade to the technological and ideological fronts, the very data that China's largest ride-hailing app once used to plot the charts and graphs of work patterns of such powerful agencies as the Ministry of National Defense, the Ministry of Commerce and the Ministry of Industry and Information Technology — to name a few — no longer appears material that should be made public, let alone fall into the hands of the US government.
Chinese cybersecurity officials ordered the removal of a raft of Didi apps from app stores beginning on July 4, citing "serious violations" in their collection and use of personal information. The orders sank Didi's share price just days after the company's trading debut on the New York Stock Exchange.
Didi's woes have ushered in a new chapter in Beijing’s epic crackdown on the tech sector. Enforcement is no longer limited to "housekeeping" aimed at taking care of businesses at home — say, punishing e-commerce behemoth Alibaba for interfering with merchants’ choice of platforms or going after food-delivery giant Meituan for restricting restaurant listings.
Rather, the crackdown on Didi is the latest example of a business getting caught in the geopolitical crossfire of US-China rivalry — this time, over data. An action plan issued by the State Council in August 2015 laid the foundations for the current crackdown: Big Data has become a "fundamentally strategic resource of national significance," having a bearing on "reshaping the country's competitive advantage."
Put another way, a failure to properly steer the use of Big Data in the right direction will hurt China’s competitive edge in the global arena, where the country counts the US as its No.1 rival, at least in economic terms.
So, how is Didi’s data relevant to national security? The 2015 research report, details of which are still available on the Xinhua website today, offers a glimpse of what a tiny chunk of data retrieved from its 377 million active users in China reveals.
The report visualizes data that on its own doesn't mean much. When read together, however, the statistics give a comprehensive view of movements surrounding top government buildings in the capital city of Beijing.
The Ministry of Public Security, for instance, was among the city's busiest authorities on a given day of July that year, recording 1,327 rides arriving and departing from its headquarters. In contrast, the Communist Party's Central Commission for Discipline Inspection, a key anticorruption watchdog, had only 49 rides in total on two given days. Didi's data also revealed exactly when officials left their workplaces at the national defense, foreign affairs, commerce, education and land ministries.
Should Didi manage to obtain additional pieces of personal information from commuters and add them to its algorithms, more deductions and conclusions could be derived from the staggering 25 million transportation transactions the company facilitates across China every day.
Having the Chinese government tracked and eventually laid bare in this manner is one of the last things Beijing wants.
The latest statement by the Cyberspace Administration helps explain that the Didi ban was geopolitically motivated from the start.
Soon after the Didi takedown, the agency published on July 10 revised draft rules that will require Chinese companies processing personal information of more than 1 million users to file for a cybersecurity review before seeking an IPO in a foreign country. A review will examine the risks of important data being exploited by foreign governments maliciously.
With US securities exchanges, including Nasdaq, having long been popular listing venues for Chinese tech players thanks to their ample capital liquidity and attractive valuations, it goes without saying which "foreign country" the government is targeting.
On the other hand, the proposed rules cast light on how Beijing now appears to be more comfortable with the geopolitical situation in Hong Kong, for which Chinese legislators on June 30 last year passed a controversial national security law, after turbulent anti-government protests in 2019 in the former British colony.
The rules only cover bourses "outside the country." As a result, investors are expecting data-sensitive companies to opt for Hong Kong for future fundraising exercises, driving up share prices on the Hong Kong Stock Exchange.
China's security concerns aren't purely about politics. They are also about the safety of the country's economy, military and society, a Chinese scholar specializing in the platform economy told a data-supervision webinar earlier this week.
Among economic concerns, Didi apps track China's logistics sector by completing on-demand freight-transportation deals. Given that logistics is a strategically significant sector, relevant data could reveal the true picture of the country's macroeconomic situation.
In a move to plug loopholes altogether, China also initiated cybersecurity reviews of similar apps Yunmanman and Huochebang. The two apps are operated by Full Truck Alliance, which floated its shares on the New York bourse last month.
From a military point of view, driving recorders installed in Didi-connected automobiles have collected troves of high-precision data concerning roads in urban and rural areas. Considering that geographical information is a restricted, sensitive resource in China, national defense could be compromised if the data falls into the wrong hands, the scholar said.
Cybersecurity enforcement isn't the first weapon China has wielded against tech operators, and it won't be the last. Securities officials are now jumping in to set the bar higher for companies wanting to tap the US capital markets, apparently countering a US push for financial audits of Chinese companies to be subject to its inspection. After all, economic decoupling is a two-way street.
Didi, even if it gets past the cybersecurity review, won't be entirely out of the woods with Chinese regulators. A pending investigation by China's antitrust agency on its possible gun-jumping with Uber's domestic arm back in 2016 will continue to weigh on the company's prospects.
While there's a price to pay for compliance and for possible wrongdoing, the reputational cost that comes with it could be even more detrimental.
As soon as regulators acted on Didi, some Chinese netizens were quick to respond that they would switch to other apps because Didi had harmed national interests. Ride-service rivals also reacted by handing out massive subsidies to snap up market share. A cab driver told MLex that passenger orders for rides on the Didi platform, which is still up and running for existing users, have since seen a sharp drop.
All this brings to mind the ways in which geopolitical crises — where Chinese consumers have a role to play — could cripple international corporates such as H&M and others, which have angered Chinese consumers, clouding their bottom lines more than regulators do.
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