Explained: How China plans to take DiDi under state control

Reports suggest that Shouqi Group, along with several other government-controlled companies in the Chinese capital will be investing in DiDi Global through a consortium vehicle. The resulting arrangement may see the consortium ending up with a ‘golden share,’ one that will give it veto powers and a seat on the board of directors of the company. Shouqi Group is one of the companies under the powerful Beijing Tourism Group; it launched its own ride-sharing app Shouqi Yueche with 100 million users in 2015. The Beijing Tourism Group runs travel agencies, malls, restaurants and hotels directly and through subsidiaries.

The takeover will be similar to the one initiated by Chinese authorities for the major technology company ByteDance, which owns Tik-Tok and its sister apps for the Chinese mainland.

DiDi had managed to raise $4.4 billion in June through a public offering in New York. While regulatory issues had first threatened the company in the US due to increased tensions between the US and China, it was still valued at over $70 billion, courtesy of being the world’s largest ride-sharing app.

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After the IPO, Co-Founder Cheng Wei and President Jean Liu retained 58 percent of the voting power in the company and kept it under their administration. Other investors in the company include Soft Group, Tiger Global Management, Temasek Holdings and Uber Technologies.

DiDi ran afoul of the Chinese state in June. It was the decision to go public in New York, against the “recommendations” of the Cyberspace Administration of China (CAC) that triggered a reaction from the government. The Chinese government in June was already eight months deep into a campaign to bring to heel the massive technological empires created in China, often thought to be sparked off due to a single man -- Jack Ma. Jack Ma and his fall from grace aside, DiDi’s decision to go ahead with the IPO was seen as a blatant challenge to the Communist Party of China (CCP) and its authority.

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The CAC, the Ministry of Public Security, the Ministry of State Security, along with several other agencies almost immediately launched investigations in Didi’s offices. The IPO might have marked DiDi as a mighty unicorn in the NYSE, but it also turned it into the next regulatory target after Ma’s Alibaba Group.

The company had its app struck off Chinese online stores and new user registrations were halted over concerns that the company had illegally collected users' personal data.

The message was immediately understood by other Chinese companies, many of which immediately cancelled or indefinitely put on hold plans of going public in the US as an aftermath of the Chinese crackdown on DiDi. But foreign investors were similarly affected, with the US Securities Exchange Commission (SEC) putting a halt to Chinese IPOs unless the companies could reasonably assure of non-interference from Chinese authorities in its business.

The Chinese Communist Party under Xi Jinping has unleashed a wave of new regulations to constrain the activities of the powerful tech companies that have empowered the new elite of China into becoming billionaires. DiDi’s takeover, however it turns out in the end, is just the latest move from the state machinery to achieve its goals of control and Jinping’s new vision of “shared prosperity."

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Meanwhile, DiDi has lost over 33 percent of its initial listing value in just over two months. The company is not the only one, with regulatory increases, a crackdown on the private education sector, and an increasingly controlling state leading to a wipe-out of over $1 trillion in the Chinese stock market.