China’s internet regulator slapped a fine on Didi, one of the country’s most valued digital firms, making it the third time the government has taken big steps to reign in the country’s rapidly expanding internet industry. To counteract President Xi Jinping’s push for more economic centralization, Chinese officials have targeted internet businesses like Didi, which provides comparable services to Uber and have accrued considerable, and some may even argue disproportionate, sway in the country’s culture.
Regulators supported by the Communist Party’s top echelons have been targeting online shopping and food delivery giants for antitrust infractions in recent months. With Didi, they wanted to show that misusing data, which China considers a national security concern and that disregarding the authorities, was a major political mistake.
Law expert at University of Hong Kong who specialises in Chinese regulatory governance, Angela Zhang, believes the C.A.C. intends to use this case as precedent for other Chinese digital enterprises.
Chinese internet regulator, Cyberspace Administration of China, announced the punishment on Thursday. It was the biggest sentence ever imposed in China for data protection violations. After a succession of infractions, including 57 million driver ID numbers stored without encryption, Didi’s founders were singled out by the authorities and national security was invoked.
The decision put an end to a year-long probe that had tarnished Didi’s spectacular IPO in the United States and eventually caused the firm to delist from the New York Stock Exchange (NYSE). Doing so on Thursday looked to ease the way for Didi to list its shares in Hong Kong, and it might indicate an end to the frenzy over regulatory rule-making and tough enforcement.
Xi Jinping is poised to claim a third term as China’s leader at a major political gathering this year, and the country’s economy has been sluggish. Many in China were pleased when China’s leader, Li Keqiang, announced support for the digital economy in May.
However, the government’s pressure on IT companies has not abated. While Didi was penalised for mishandling user data, China’s antitrust agency penalised other internet companies, including WeChat and Alibaba, for not reporting acquisitions to the antimonopoly regulator for assessment.
As a result of this punishment, Chinese internet businesses, which had developed swiftly in part by operating with minimal regulation, may rethink how and whether they should acquire, store or profit from personal information of Chinese residents.
Data security is a legitimate issue for the government. Excessive data collecting and leaks in the computer industry have in the past led to massive fraud. The Chinese government has enacted legislation requiring businesses to improve customer service and data security.
Although the government has restricted the private sector, it has had difficulty protecting the vast amounts of data its own security apparatus gathers on its citizenry through online and real-world monitoring. Shanghai police database containing billions of records and personal information of Chinese individuals was offered for sale recently by a hacker.
It was revealed in a statement by authorities that Didi had unlawfully acquired 12 million screenshots from customers’ phones and amassed personal data, including millions of addresses and phone numbers. According to the statement, driver identifications were kept in plain text rather than encrypted and the corporation neglected to alert customers about analyses of their trip data.
Cheng Wei, Didi’s founder and CEO, and Jean Liu, the company’s president, were also singled out as violators. A total of $150,000 was imposed on each individual.
A government watchdog found that Didi’s illicit activities posed a major threat to the country’s critical information infrastructure and data security.
No firm, no matter how big or renowned, could afford to disregard Beijing, according to the regulator, who accused Didi of “malicious avoidance of monitoring” and a refusal to follow the explicit conditions laid down by the Chinese authorities.
According to a statement from Didi, the company has agreed to the penalty and has pledged to enhance its security measures. Didi has been restricted from registering new customers or listing its applications in shops as part of the probe, which has had a negative impact on the company’s financials. Despite the widespread expectation among experts that the government would lift the bans, this was not addressed in the statement.
Didi’s punishment was comparable to those paid by Alibaba and Meituan, two other Chinese internet heavyweights, during the course of a nearly two-year government crackdown on the industry. Many computer firms’ share values have been depressed by regulatory constraints and an ongoing dispute between China and the United States over auditing.
The slowing in China’s economy has been attributed to severe Covid-19 regulations, which have led to several city lockdowns around the nation. It was a grim week for economic development in China, with unemployment nearing record levels and consumer spending slowing to its lowest level since the beginning of the epidemic.
It’s been a rapid decline for Didi, long regarded as an innovative and disruptive force in China’s stodgy transportation business. When it acquired Uber’s Chinese business ahead of its American competitor in 2016, the company was hailed as the pride of China’s vibrant and valued start-up sector. According to the company’s leaders, the data it gathered will be used to clear traffic congestion and ultimately lead to the development of self-driving automobiles.
Beijing has attempted to construct a private sector that is more aligned with the Communist Party’s emphasis on political security and achieving its policy objectives by gaining more influence over internet companies like Didi. It seems that public perceptions of China’s IT industry, which were formerly seen as a sign of the country’s bright future, have also evolved.