In the filings Didi filed prior to going public, the Chinese ride-hailing platform warned investors, not without warnings, that Beijing regulators were pending.

After China’s Internet Regulatory, Antitrust and Tax Agency convened a meeting in April with more than 30 other Internet companies, the company investigated its business and “uncovered a number of areas that could be considered problematic from a compliance perspective . “Although government officials were conducting on-site inspections, Didi said it couldn’t guarantee investors that it would avoid penalties.

Those warnings barely hinted at the sudden crackdown that undid Didi’s coming-out party.

Didi’s stock lost a fifth of its value Tuesday and fell again in early New York trading on Wednesday. The company was trading 16 percent below its IPO price a week earlier.

The crash came after a series of rapid-fire actions by government agencies in Beijing, in which senior policy makers said this week that they would aim to strengthen supervision over Chinese companies that, like Didi, list their shares on foreign exchanges.

Just days after Didi went public, China’s internet regulator asked the company to stop registering new users so it could conduct a cybersecurity clearance. Next, the agency ordered that Didi’s app be removed from the mobile stores due to concerns about data collection.

Then, on Wednesday, China’s antitrust agency hit Didi and other tech companies, including Alibaba, with modest fines for failing to report merger deals to the agency in advance. (Didi pointed out the possibility of such penalties in his IPO disclosures.)

A Didi representative declined to comment. The company said it was unaware of the regulators’ plans to review cybersecurity or banning new downloads prior to the release.

However, Jason Hsu, chief investment officer at Rayliant, an asset manager that invests in Chinese securities, said that Chinese regulators usually held discussions with companies about regulatory actions they would take.

“So you could assume that Didi knew about a possible upcoming formal investigation before going public,” said Hsu.

The company’s listing was completed at breakneck speed. Didi submitted preliminary documents on June 10th. Two weeks later it announced an expected price range for its stock. Its shares began trading less than a week later.

If Didi and the banks that arranged the IPO – Goldman Sachs, Morgan Stanley and JPMorgan Chase – become vulnerable to investor lawsuits and regulatory issues in the US, the prior information on market-moving regulatory decisions may not be disclosed.

Representatives of the banks and the US Securities and Exchange Commission declined to comment. Didi is represented in the US by Skadden, Arps, Slate, Meagher & Flom, who do not comment immediately.

But privacy and network security aren’t the only fronts Chinese officials could encircle Didi. That means the company, its investors, and its underwriters could face even more unpleasant surprises.

Daily business briefing

Updated

July 7, 2021, 2:45 p.m. ET

China’s antitrust agency has been scrutinizing the country’s internet industry with unprecedented energy in recent months, accusing the corporate giants of abusing their size and market power. In April, it fined Alibaba, whose shares are also listed in the United States, a $ 2.8 billion fine for preventing traders in its bazaars from selling on other online platforms.

At the local level, Didi has been fighting with city authorities in China for operating permits and licenses for years. The company admitted in its IPO filings that many of its drivers in China had not received the license they needed to provide ride-hailing services. Beijing and Shanghai, for example, require ridesharing drivers to be local residents, but both cities make it very difficult for people to register as local residents in order to control population growth.

And a “large” number of cars on its platform may not have the required vehicle permits, Didi said in its IPO documents. Cars used for online ride hailing services in China must meet certain safety criteria in order to receive such permits.

This week’s announcement by Chinese leaders that it will tighten regulation of overseas-listed Chinese companies makes it a very real possibility that other Chinese regulators will decide to crack down on Didi. The government’s policy paper released on Tuesday said that stronger capital market regulation should be combined with broader efforts to maintain national security and social stability, an indication of how seriously Beijing is now addressing such issues.

Different Chinese government agencies usually have to advise each other, even if they don’t necessarily coordinate directly on investigations against large companies like Didi, said Wendy Ng, who studies Chinese competition law at Melbourne University. Sometimes other authorities push back if they think the case is weak or if their area of ​​regulation is being interfered with.

“But in this environment, where at least for now the floodgates have opened to give regulators the green light to curb digital platforms, it seems much less likely that other regulators will resist.” said Professor Ng.

For example, if China’s internet regulator finds Didi failed to protect users’ data, it could lead to an antitrust investigation into whether the company did so to oust its rivals, Professor Ng said.

“This is exactly what antitrust authorities around the world are talking about: whether a violation of privacy could also be an indication of an abuse of dominance,” she said.

The United States is trying to tighten its own rules for foreign companies listing on American stock exchanges. Washington lawmakers, who have called for US regulators to have more power over Chinese companies, point to the chaos at Didi to aid their cause.

“Even if the stock rebounds, American investors still have no insight into the company’s financial strength because the Chinese Communist Party is preventing US regulators from reviewing the books,” Florida Republican Senator Marco Rubio said in a Statement to the New York Times. “This is jeopardizing the investments of American retirees and is channeling urgently needed US dollars into Beijing.”

Mr Rubio and Senator Bob Casey, Democrat of Pennsylvania, tabled a bill in May that would prevent Chinese companies from going public in the United States if they did not submit to the full authority of the American government agency Auditor oversees.

Matthew Goldstein contributed to the coverage. Albee Zhang contributed to the research.