Just days after Didi Chuxing went live on the New York Stock Exchange, Chinese regulators announced on Friday that the ride-hailing service was under review and banned it from signing up new users. On Sunday, they said it had committed “serious violations of the law in collecting and using personal information” and yanked it from app stores. After trading restarted Tuesday morning, Didi’s stock price fell from $15.53 at close on Friday to $11.77 before making a slight recovery. A company initially valued at $68 billion, with 377 million active users in China, had been publicly humiliated.
The move isn’t a deadly one—yet. If you’ve already signed up for the service, you can still use it. But as Didi warned in a notice Sunday, the freeze is likely to affect revenues, and it’s a serious shot from the authorities that may portend worse amid a new campaign against China’s big technology firms. Yet it’s also part of a decades-long struggle between drivers, companies, and the government over who gets to offer a ride.
Since the 1980s, Chinese drivers have been trying to get by—and to stay out of the eye of the authorities. At first, cabs were highly limited and far beyond most people’s means, catering only to foreigners or tourists. Being a cab driver meant having access to a vehicle, a rare luxury and one, as the anthropologist Mayfair Yang describes in her seminal Gifts, Favors, and Banquets, that bought great status and the opportunity for profitable exchanges.
“The respect with which drivers are treated was graphically illustrated to me one Sunday in 1984 when I took a taxi to the home of a worker to attend his wedding banquet,” Yang writes. “The worker’s family would not let me send the taxi driver back but insisted that he, a man they had never met before, also partake of the banquet and their hospitality. As we departed, the worker’s family members hovered around the driver and invited him back to their homes as a friend.” Access to a vehicle might potentially get your kid a place in a better school or a telephone installed in your house or goods that were supposed to be sold only to foreigners.
But the good times didn’t last. As cars became more common, taxi drivers diminished in status—and their profits started to shrink. Local governments also became wary of the growing number of drivers; in 1994, Beijing, for instance, froze the number at 60,000. That meant that the bulk of the profit in the industry went not to individual drivers but to the taxi firms that controlled 98 percent of the licenses and which often provided the vehicles.
With most drivers renting their cars from the firms, it became a struggle to earn a living after paying costs every month. That made drivers eager to take only the most profitable routes, leading to them often turning down fares—and since the firms routinely charged them extortionate amounts for cleaning, would-be passengers during rainstorms or muddy days were out of luck.
Heiche—“black cars”—emerged to fill the gap. (“Black” in Chinese refers to any illegal business, rather than to the color of the cabs.) They were private vehicles operating without a license, advertising themselves through a string of lights hung on the back window, and negotiating fares at the outset based on distance rather than a meter.
Some were regular drivers—but others were opportunists, picking up fares by chance when the streets were empty of cabs. In Beijing in 2004, after trying for two hours to find a cab in the middle of a rainstorm, I got a lift with a van just in time to rush for a train to Xi’an—for about six times the normal price of the ride. The best heiche were limo drivers for Communist Party officials, who used the time their bosses were in meetings to make a little money on the side; during national meetings in Beijing, they offered comfortable and extremely cheap rides since they were from smaller cities and didn’t know the local prices. Heiche were usually about twice the price of an ordinary cab, and they had a reputation as scam artists. But they were sometimes the only choice.
Even regular cab drivers sometimes acted as heiche, accepting longer fares only on agreement of a set fare and turning off the meter. (Stuck in another, deadly storm in 2012, I got a ride by waving three 100-yuan notes at a taxi.) They found other ways to skirt regulations. Because of the shortage of licenses and the thin profit margins, it was also common for several people to operate off the same registration, keeping the car in operation 24/7. Much of the time, the photo of a Beijing cab driver on the license, displayed in the back of the cab, didn’t remotely match the appearance of the driver. The police or the chengguan (so-called urban managers who fill many roles performed by cops elsewhere, such as traffic control and handling street vendors, sometimes through violence) would attempt occasional crackdowns, to little effect, especially since they would often accept a bribe in lieu of a fine.
From 2006 onward, taxi prices rose from 1.6 yuan per kilometer to 2.3 yuan—roughly staying on par with inflation. But being a taxi driver remained a parlous financial prospect. The price of the fixed start fee, which went from 10 yuan to 13 yuan, stayed too low, discouraging drivers from short trips. So were the fees for just waiting—a critical problem in a city whose vast roadways were designed for troops, not traffic. Beijing, like many other Chinese cities, consists of massive city blocks with no passages through them, creating numerous choke points at rush hour. A journey of 15 minutes could easily turn into 60 or 90, especially since the roads were also regularly blocked for motorcades.
All this made rush hour a poor prospect for drivers, who sometimes lost more money on fuel than they made from the meter, resulting in thousands of them simply taking those hours off. That produced a mass shortage of cabs just when they were most needed.
Enter Didi.
The ride-hailing giant was formed from the merger of two successful apps, Didi Dache and Kuaidi Dache, in 2015. The previous three years had seen numerous apps emerge, but Didi had been backed by Tencent and Kuaidi by Alibaba, both giant internet companies already. Uber, which had arrived in China in 2014, had already pioneered the model of simply ignoring the laws or regulations in numerous jurisdictions worldwide and then defending itself in court. The same went for the ride-hailing apps in China, which were operating in, at best, a legal gray zone. They were essentially a heiche interface but one that was far more convenient, cheaper, and more protected against scams—and that had the money and political connections to avoid being shut down. Uber was also trying to compete in China, but while it initially took a chunk out of Didi’s market share, some drivers complained that the police were far more likely to arrest or harass them than they were their Didi competitors.
Existing cab drivers protested Didi, but over time many ended up joining the service. Soon you were as likely to be picked up by the familiar form of a yellow cab as by a private driver. For those who were virtually locked out of being able to use the app, like foreign tourists or older people who struggled with technology, rides became even more inaccessible. But for many other passengers, it was a godsend, removing the stressful process of trying to find a ride, especially at peak times.
Like Uber, Didi made massive losses, offering subsidies to drivers and riders alike to lure them to the platform. (As of 2021, the company’s net losses were $1.6 billion.) But economic woes could be put off, especially as a compelling story of future profits continued to draw investors, including $1 billion from Apple. The country’s brief flirtation with cheaper bike-sharing services between 2014 and 2018 proved to be a dead end, leaving tens of millions of bikes in graveyards on the edge of cities. 2016 saw ride-hailing apps given legal status. The era of the heiche was well and truly over—or so it seemed. And a willingness to burn through capital and a home advantage let the firm triumph over Uber that same year, acquiring its Chinese branch.
When it came to negotiating the deal with Uber, it may have helped that Uber’s head of strategy for China, Liu Zhen, and Didi President Liu Qing (aka Jean Liu) were cousins—scions of a powerful Beijing family. Their grandfather, Liu Gushu, was a senior figure at the Bank of China, while Qing’s father and Zhen’s uncle is Liu Chuanzhi, the billionaire founder of the computer firm Lenovo. Both firms had sought leaders thoroughly positioned on the inside of existing power networks. (Uber China’s failure wouldn’t deter Liu Zhen’s career: She went on to head the overseas acquisitions of ByteDance, the creators of TikTok.)
Yet political problems rapidly threatened to scupper Didi’s success. The popularity of the app was creating a new class of migrant workers, countryside drivers who would head into the big cities to pick up fares, often sleeping in their cars. Metropolises already trying to force out workers were wary of this influx. Two murders by Didi drivers also drew sharp attention to the company’s safety failings, especially around its carpooling service. As a result, urban authorities started to demand far more certification for drivers, including that their cars be expensively registered as commercial vehicles, effectively deterring the part-time drivers who had previously been a majority. In Beijing, Didi drivers now needed a taxi license and to have a Beijing hukou—the household registration system used to restrict population movement. The number of drivers went sharply downward, and waiting times steeply increased.
Didi doubled down on public obeisance to the party—the usual tactics of Chinese firms that fear government troubles. A “red flag steering wheel” program introduced in 2019 allowed premium users to see whether their driver was a Communist Party member, with the company’s press material stating it would encourage “mobile branches” of the party. Didi’s online classroom offers a “Love the Country, Love the Party” course, a propaganda line introduced in 2014. The company boasted that it would hire a thousand Communist Party members for customer service positions.
The app stayed extremely popular—in part because of the lack of alternatives. In 2020, the firm saw its first profitable year. That was a strong runway into the next stage of its business ambitions: a Western initial public offering (IPO). It listed last Wednesday on the New York Stock Exchange. It was the next logical step for a company that was hiring worldwide and looking to further expand outside of China.
It was also a huge mistake.
With U.S.-China relations at a nadir, a foreign listing was a political error—especially when access to Didi’s massive data reserves was involved, seen as a potential security risk by Beijing. China has passed several laws designed to give the government access to any data used by firms operating in the country—and to prevent foreign powers from any use of it. The public excuse is that this protects Chinese citizens, and to a certain extent that’s true. Invasions of privacy have been a serious worry, but the main purpose is the constant aim of the Chinese Communist Party—control.
The party is also involved in a crackdown on domestic big tech firms, fearing not only data leaks but the potential political power of any institution not completely controlled by the Communist Party. China’s tech firms have hardly been bastions of dissidence—but figures like Alibaba’s Jack Ma were worryingly popular and sometimes dangerously defiant of regulators. Alibaba was slapped down hard last November when the Shanghai and Hong Kong IPO of Ant Group, its internet finance giant, was blocked at the last minute. Ma has all but disappeared from public life.
Unlike Alibaba, China’s regulators gave Didi fair warning about the IPO, cautioning it to delay the move weeks beforehand. Didi ignored the warning—a bafflingly foolish move in the political context of China today. Perhaps the company hoped to pull one of the riskiest tricks of Chinese private firms: making an announcement public enough that going against it would be an embarrassment for the authorities.
In Yu Hua’s China in Ten Words, for example, he describes a provincial businessman bidding for a prime-time advertising spot with money he doesn’t have—and then going to the local party leadership and saying: “If you back me up, then our city will have produced an entrepreneur famous throughout the nation. If you let me down, then our city will have produced the biggest trickster in the whole country.” Didi’s leadership may have hoped that the damage of publicly slapping down the firm so soon after a landmark IPO would deter the authorities from following through.
They were very wrong. Not only does Didi now face a political storm, but the crackdown has expanded to other firms with recent foreign listings. Xi Jinping’s China sees more value in keeping domestic firms firmly under its thumb and maintaining solid data control than it does potential gain or leverage in letting them expand globally—especially if they’re defying clear instructions when they do. On Tuesday, the State Council announced that more restrictions were coming on foreign listings. Other Chinese firms that have already listed in the United States, like Weibo, may be looking to go private and then relist in China.
Didi’s next move, like other companies caught in the government’s crosshairs, is very likely to be issuing a groveling public apology to the state and the party, followed by promises to strictly follow the rules in the future and more gestures of subservience. (It already offered “sincere thanks” to the regulators on Sunday in the Chinese, but not the English, version of its statement.) That may be followed by a leadership shake-up. If the company is politically damaged enough, powerful party predators may move in, looking to get a financial stake in the firm themselves—the fate of many other businesses. If it’s lucky, it may simply be able to curb its ambitions for now.
For Didi’s drivers, the upset may mean another round of regulatory changes that leave some of them stranded. And if the crackdown gets worse, China’s commuters may be in the same position.
