Didi Crackdown: CCP’s Power Struggle & An Accelerator of the CCP’s Demise

Hello, everyone, welcome to “Inconvenient Truths”. I am your host Jennifer Zeng.

 In the past few days, the dramatical events surrounding Didi Chuxing, the Chinese version of Uber, have caused a lot of attention, especially among Wall Street investors. Its share price suffered a free fall only a few days after it went public in New York. It’s IPO, which means initial public offering, was the one of the largest in the US over the past decade, and the biggest by a Chinese company since 2014. So what on earth is wrong with Didi? And what can we learn from it? Today let’s talk about this.

 Before we move on, please make sure you subscribe to and share my channel if you haven’t. If you have any comments or questions, please type them in the chat box, I will try to respond to some after I finish talking. 

 What Is Didi? 

 Now, let’s give a brief introduction of Didi first. This is the logo and the banner of Didi at the New York Stock Exchange. I guess they put it up on the day when Didi began trading there, that was, June 30. 

Didi, in short, is the Chinese version of Uber, a ride hailing company. It is headquartered in Beijing, has over 550 million users and tens of millions of drivers. 

It was founded in 2012 by Cheng Wei, who had worked for Alibaba and Alipay for 8 years.

2 years later, in 2014, Uber also officially launched in China. 

However, after 2 years, in 2016, Uber China was squeezed out of China by Didi. It sold itself to Didi for $35 billion, and in exchange, gained 5.89% of Didi and some 17.7% economic interest in Didi. The transaction also provided DiDi with a minority equity interest in Uber. So this transaction was once called a Win-Win deal. 

Didi has some very powerful shareholders and investors. In 8 years, it had attracted $21 billion investment. 

With so much money, it has been spending very aggressively to expand its market share. It did grow very fast and gained absolute domination of the Chinese market. 

Free Fall After CCP’s Crackdown

 However, it had always been running at a loss. 

By 2019, in the 7 years since its establishment, it had lost 50 billion yuan($7.72 billion). It only started to claim that it had made some profit as late as in May last year.

Then, through its IPO in the US recently,  it raised $4.4 billion, giving it a market value of around $68 billion. 

Then, only two days after it went public,  the Cyberspace Administration of China ordered app stores to remove DiDi due to “serious violations” of laws and regulations regarding the collection and use of personal information. New users cannot register either. 

Alipay and WeChat, the most popular payment app in China, have also suspended Didi to new users.

As a result, the share price of Didi plunged sharply on July 6 after the market reopened following the Independence Day holiday. 

Its market value as of yesterday fell to $57 billion, down from nearly $70 billion the day it went public.

So, this is to say, the US investors have lost $13 billion in just 5 trading days.

The share prices of many other Chinese companies fell too because of Didi. According to Bloomberg, “China’s technology giants have seen a combined $823 billion wiped from their market value since a February peak, with Beijing’s expanding crackdown on the sector fueling investor concern that the selloff is far from over.” 

 The latest news is, ByteDance, TikTok's parent company, has abandoned its plan for New York listing after the Didi crackdown. 

 OK, that’s a brief summary of the events.

 Possible Reasons Behind the Didi Crackdown

 Next, what on earth is happening?

 There are several possible reasons, and I will talk about them one by one.

 [No. 1] Power Struggle within the CCP

 No. 1: Power Struggle within the CCP. 

It is widely known that Liu Qing (or Jean Liu) , the president of Didi, is the daughter of  Liu Chuanzhi, founder of Lenovo. And Lenovo has a strong military background. 

Also, Liu Chuanzhi has a good relationship with Alibaba’s Jack Ma, and was also one of the founders of  Hupan University, which was forced to change its name a while ago when Alibaba was being cracked down on and Ant Group’s IPO was halted. 

Didi’s shareholders include many national level giants, such as Bank of Communications, China Merchants Bank, Poly Capital, China Life, China International Trust Investment Corporation (CITIC),  and Ping An Insurance, etc, each of which has one or more powerful red families behind it.

In addition, Didi also has investment from Boyu Capital, Sequoia Capital, Hill House and Softbank, all of which are private equity giants. 

Please note that Boyu Capital was founded by former CCP head Jiang Zemin’s grandson Jiang Zhicheng.

In other words, Didi is basically a huge platform supported by the CCP's heavyweight red families in conjunction with international capital giants, with Liu Qing as a front person.

 Hong Kong businessman Elmer YUEN said to Chinese language media Vision Times that Xi Jinping is cracking down on Didi and Ant Group to deal with Jiang Zemin’s faction that is behind Didi and Ant Group. Although on the surface, Xi Jinping has messed up a lot of things, he himself didn’t lose anything, as he is only destroying the Jiang faction's fortune.

Yuen said he once did business with Xi Jinping’s brother. So he knows that in the business circle in China, when Xi Jinping’s name was mentioned, people treated him as an outsider.

In other words, although Xi Jinping has managed to gain control over the army, he has never grasped the economic power. Jiang’s faction still controls the main, big businesses in China, and is especially strong in Guangdong, Shanghai and Shenzhen. 

Yuen also said, Xi Jinping is learning from Mao Zedong, and adopting a Cultural Revolution style power struggle to fight against Jiang. So his cracking down on Didi and Ant Group only hurt Jiang’s faction, not himself.

Yuen said, Didi and Ant group have not only Jiang’s faction, but also Wall Street and American investment companies behind them. These forces have strong ties with those powerful guys at the Davos World Economic Forum. So they won’t be targeted passively without doing anything, and are trying to convince the Biden administration to force Xi Jinping to step down, so that they can continue to make big money like before. 

Also on this Tuesday, there was another very strange thing in China. The General Office of the Central Committee of the CCP and the General Office of the State Council issued a document called  “Opinions on Strengthening the Crackdown on Illegal Securities Activities According to Law”.  Usually, the securities industry is regulated by China Securities Regulatory Commission. But this document was issued directly by the central government instead of China Securities Regulatory Commission.

Article 19 of the document says, “Data security, cross-border data flow, management of confidential information and other related laws and regulations should be improved. Provisions on strengthening the confidentiality and file management related to the issuance of securities and listing abroad should be revised. The main body that is responsible for information security of overseas listed companies should be identified.”

Article 20 of the document says, “Strengthen the supervision of Chinese stocks. Take effective measures to respond to the risks and contingencies of Chinese companies and promote the construction of relevant regulatory systems. Amend the special regulations of the State Council on the issuing of shares abroad and listing of Chinese companies, clarify the responsibilities of domestic industry authorities and regulators, and strengthen cross-sectoral regulatory coordinations.” 

Both Article 19 and 20 are under Chapter 5 of this document, and the title of Chapter 5 is “Further Strengthen Cross-border Supervision and Law enforcement Judicial Collaboration”. 

Given this document was issued only days after Didi went public, and right after the CCP's crackdown on it, it is very obvious that this chapter and articles were crafted specially for Didi, as well as Chinese companies listed overseas. 

Why would the CCP’s central government bypass the China Securities Regulatory Commission and directly issue such a document? It shows that Xi Jinping is very unhappy with the China Securities Regulatory Commission, which failed to stop Didi from going public in the US. We can just imagine how fierce the power struggles are behind all these. 

Well, that’s the No. 1 reason. 

[No. 2] Battle over Data Control inside China

 The No. 2 reason is the battle over data control inside China. 

In this big data and digital era, it is very important for the CCP to have absolute control over the data to practice its digital totalitarianism. The CCP media once vowed, “No Internet giant should be allowed to become a super database of personal information of Chinese people in greater detail than the state.” 

 So the battle over data control has been going on for a while, that’s why other Internet giants in China, such as Alibaba and Tencent were also fined half a million yuan ($77K) yesterday. 

And in April, 9 Internet companies were punished, each was fined half a million yuan too. 

[No. 3] Battle over Data Control outside China

No. 3 reason is also about data control, but it is the control outside of China.  

There have been rumors that Didi was forced to hand over to the US its user data, as well as data of Chinese maps, including detailed information of some sensitive places such as military buildings. 

Some Chinese netizens are calling Didi a “traitor” because of this. Didi has denied this allegation. I personally don’t believe the US would require Didi to submit this kind of info.

However, when the US-China rivalry is getting worse, it is fully understandable that the CCP would be very worried that the US would obtain data through the listed companies, just like the CCP had forced US companies, such as Yahoo, to hand over its user information to the CCP. Apple was also required by the CCP to set up its cloud center in China, and keep Chinese users' data inside China.  So the CCP is worrying that the US government could do the same. 

 [No. 4] Secrets Leaked Via Listed Companies

 The US authorities are now having stricter audit requirements on Chinese companies. As a result, the huge networks behind the listed Chinese companies could be exposed, and those networks involve all the top CCP figures. The CCP doesn’t want to have that happen. 

Also, the public companies are required to release financial reports regularly. Through those financial statements, some of the CCP’s secrets can be leaked too. 

The CCP doesn’t want the public, especially Chinese people, to know too many things about the listed companies, especially who actually owns those companies. 

Inside China, everything can be pushed underneath the table, or concealed inside a dark box.  But once the companies submit their shareholder and operation information as required, things can go out of control.

 [No. 5] Embracing US Capital Goes Against Xi Jinping’s Tough Stance

 The No. 5 reason is that while Xi Jinping just vowed to have the “foreign forces”  “break their heads and shed their blood in front of the Great Wall of Steal made by the blood and flesh of 1.4 billion Chinese people” at the CCP’s 100th anniversary celebration on July 1, Didi is embracing the US capital. This doesn’t look good for Xi.

 [No. 6] Didi Goes Public Against the CCP’s Advice

 No. 6 reason is that Didi went public against the CCP’s advice. 

According to the Wall Street Journal, the CCP had suggested Didi to delay its US IPO and to conduct a thorough self-examination of its network security, but Didi didn’t follow the CCP’s advice. So this must have angered the CCP as well.

 Long Term Consequences

 We’ve seen the short term consequences of the CCP’s crackdown on Didi, that is the sell off of not only Didi, but also other Chinese companies. 

But what will be the long term consequences?

 Tao Rui, a former Harvard University scholar, said this on Twitter: “The Didi incident is a big, historical event that is no less important than the Hong Kong National Security Law event. The stock market is in panic. China's major technology companies lost a staggering trillions of dollars in market value in just two days, dragging down the entire U.S. stock market. [The CCP] doesn’t care about whether the confidence of international investors about China will be destroyed. It is a symbolic event that the previous national strategy of focusing on economic construction was shaken.  China will go back to the era, when they claimed that the grass of socialism is better than the crops of capitalism. The CCP is trying to safeguard its regime at any cost. 

“This means that ideologically, the CCP will be just like North Korea. In order to maintain its power, it doesn’t hesitate to destroy the economy. 

“This is a historic moment. After this,  China's economy will gradually go into the internal cycle, ideology is above all, the economic construction as the center will become history!”

 Lessons to Learn

 So, what is the lesson to learn here?  In science, we have a term called “system error”. When there are system errors, no matter how you use this instrument to measure something, you will always get wrong results.

Despite the fact that China, or the CCP’s China, has never respected or followed international rules or norms, governments, politicians, Wall Street, and other elites, all pretend that the CCP is part of our civilized world, and give it all kinds of licenses to do evil to the world.

It is true many people did end up making a lot of money by working, or doing business with the CCP, just like what former CCP head Jiang Zemin said, “Making big money without making any noises”, or “making big money quietly.” 

In Jiang Zemin’s era, many westerners did make a lot of money, together with Jiang’s corrupt family members. So there was a term to refer to Jiang’s way of governing the country, that is, “Governing the country via corruption.”

All CCP officials and their partners in the West corrupt China together to make huge money. Who cares about anything else?

Without the investment from the West, the CCP would have gone bankrupt long ago. 

After Xi Jinping came to power in 2012, he initially did manage to arrest a lot of corrupt CCP officials, and had won some support from the public.

However, at some stage, he somehow felt that he needed to keep the CCP to keep his power, and thus made some kind of compromise with Jiang Zemin’s faction. 

So his anti-corruption campaign ended half way through, and he turned to the left to seek legitimacy. He doesn’t realize that it was him that is sustaining the CCP, not the other way around. 

If he had had the courage to abandon and disintegrate the CCP several years ago, perhaps he would still have had some chance to save himself and his power. 

But now, I think it is too late for both him and the CCP. He is indeed the “Chief Accelerator” who is accelerating the CCP’s demise.

Do you agree? 

7/8/2021*

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