China is cracking down on its own tech giants, but Apple and the U.S. IPO market could pay the price
When Chinese authorities swiftly shut down one of its country’s most popular apps in an antitrust crackdown, there were immediate debilitating consequences for Chinese companies already trading in the U.S. But the longer-term ramifications of the move could sting the U.S. IPO market, as well as American tech giants like Apple Inc.
Such is the collateral damage in the cross-border conflict between the U.S. and China on technology. The two countries have been battling each other for technological advances for years, and have simultaneously been challenging their domestic tech giants’ growing power in different ways in recent years.
The latest move by officials in Beijing was dramatic, blocking new users from downloading the popular ride-hailing app Didi Global Inc. DIDI,
China is also probing Kanzhun Ltd. BZ, the owner of an online recruitment platform, and Full Truck Alliance Co. YMM, an Uber-like trucking startup. Both companies listed in the U.S. recently.
The effects were immediate for Chinese companies listed in the U.S., with stocks that went public with large valuations in recent years — like Alibaba Group Holding Ltd. BABA,
“The real story here has much less to do with an impact on the U.S. market,” Harry Broadman, managing director at the Berkeley Research Group LLC, told MarketWatch. “It is squarely in the Chinese market — certainly for Chinese tech firms there, but also possibly U.S. tech firms operating there.”
Apple has gleaned 15% to 20% of its twelve-figure annual revenue totals from Greater China in recent years, but with increasing criticism. During Apple’s antitrust lawsuit with Epic Games Inc., an Epic attorney pointedly brought up a New York Times investigation that concluded Apple and its chief executive, Tim Cook, compromised individuals’ personal information to curry favor in China.
“Governments have the right to pass laws for their citizens. We have to comply with the laws in the jurisdictions we operate in,” Cook replied.
See: The increasingly complicated Apple-China relationship
Apple’s conflicted condition in China highlights escalating concerns for U.S. tech companies that deal in data while pursuing business in China, home to the world’s second-biggest economy and largest population, say economists. Paul Zarowin, an accounting professor at New York University’s Stern School of Business, sees what is unfolding as a referendum on any tech company doing business in China.
“China is becoming more and more totalitarian. Regardless of where you’re listed, it almost doesn’t matter in terms of control in China,” Zarowin told MarketWatch. “Apple AAPL,
The consequences for the U.S. IPO market, investors, and prospective Chinese tech companies could be disquieting. Chinese companies have raised more than $26 billion in the U.S. IPO market in the past year and a half, according to Dealogic — $13.6 billion in 2020 and $12.6 billion already this year — and more than 30 companies based in China and Hong Kong were expected to list in the U.S. in the rest of this year, according to data compiled by Bloomberg.
Read also: A tale of two $2 billion Chinese IPOs headed in very different directions
Chinese medical data group LinkDoc Technology LDOC,
“The Chinese are leaning on companies like Didi not to go public. Didi was a warning to other companies,” James Lewis, senior vice president at the Center for Strategic and International Studies, told MarketWatch.
Though the Chinese are loath to admit it, their actions copy U.S. policy. The Trump administration threatened to restrict Chinese companies access to financial markets; the Chinese are trying to “force people to buy Chinese rather than go somewhere else,” Lewis said.
For more: Didi debacle riles lawmakers who seek to block U.S. investors from trading Chinese stocks
China’s strong-arm tactics mirror the Trump administration’s attempt to force Chinese telecom companies to delist from U.S. public markets, and underscore tightening policies around data control and privacy by the Chinese government amid a broader crackdown on tech companies. Last week, the Cyberspace Administration of China (CAC) called for Didi to stop accepting new user registrations. The widespread regulatory squeeze on Chinese tech companies began late last year with the cancellation of a $37 billion listing planned by Ant Group, an Alibaba fintech affiliate.
Meanwhile, Chinese regulators are considering a change that would require companies using a variable interest entity structure — Alibaba, Tencent Holdings Ltd. 700,
At the same time, Chinese companies face intensifying pressure within the U.S. On Wednesday, Sen. Marco Rubio, R-Fla., who last month called on the Securities and Exchange Commission to block Didi’s IPO, said it was “reckless and irresponsible” for Didi to have been allowed to sell shares in New York. In May, Rubio introduced an act that would bar U.S. listings for Chinese companies out of compliance with American regulators.
Critics point out Chinese tech companies were encouraged by the government to grow at all costs, but when a few behemoths — Baidu Inc. BIDU,
“The Chinese government is doing what U.S. and EU regulatory bodies have been doing for years,” Ionut Ciobotaru, chief product officer at Verve Group, told MarketWatch. “Though they do have governmental surveillance, they want to make sure that’s not the case for the tech companies. It could also be that they want to keep these unicorns in check, like preventing AliPay’s IPO.”
