How Didi’s shocking-but-inevitable delisting happened, in six steps

In June, the ridesharing firm that ate Uber alive in China went public in the United States. Now China has decided to eat it alive. Didi’s IPO was the biggest U.S. offering of any Chinese company since Alibaba’s in 2014. But it’s all been downhill from there:

1. Two days after the IPO, Didi was pulled from Chinese app stores and the Cyberspace Administration of China began investigating it on data security concerns. The stock plummeted 20%.
2. Within a few days, Chinese regulators were rumored to be curtailing VIEs, the foreign-listing loophole that tech companies had exploited for decades. Yesterday, we reported on new plans to outlaw VIEs entirely.
3. Though Didi made 94% of its money in China, the perceived betrayal of going public in the U.S. — and exporting sensitive user data, in Beijing’s eyes — created an opening for competitors like T3 and Meituan.
4. After weeks of unrelenting government scrutiny, over the summer and fall various plans emerged for how Didi could placate China, from going private to letting workers unionize to listing in Hong Kong. But China’s investigation showed no signs of abating.
5. Meanwhile, on the U.S. end, things got even tougher for Chinese companies trading American depositary receipts (ADRs): the Securities and Exchange Commission has progressively tightened auditing standards, threatening a mass delisting by 2024.
6. Finally, China asked Didi to delist from U.S. markets once more over the Thanksgiving holiday. Today, the company said it would comply.

Why it matters: This is probably the greatest tangible impact so far of the U.S. and Chinese beatdown on Chinese ADRs. There’s now more chance than ever of a mass exodus and financial decoupling, whether all at once or spread out over the next few years.

• If you’re a U.S. investor with a stake in Didi and other Chinese ADRs — which total 253 — those investments are even riskier than they already were.
• But even if you don’t invest, index funds, banks, and other major institutions do. That could spell trouble for the broader financial landscape.
• Chinese tech will be cut off from a major funding source, and it’s unknown how an alternative funding environment in China will affect tech innovation.

What’s next: Chinese internet companies that hold a lot of data and are listed in the U.S. — think Alibaba, JD.com, and Pinduoduo — are particularly at risk of delisting. Expect to see many of these companies spinning off departments that handle sensitive data to preempt any government action. 2022 could be the year of restructuring; that’s what ByteDance did last month in pursuit of its own repeatedly delayed IPO.