What happened
Shares of several Chinese stocks exploded higher today after media outlets reported that months-long investigations significantly hampering their growth could soon come to an end.
Share of China's largest ride-hailing app, DiDi Global (DIDI -5.15%), had popped nearly 50% as of 10:26 a.m. ET today. Meanwhile, shares of the online recruitment firm Kanzhun Limited (BZ) had jumped more than 23% and shares of the freight platform Full Truck Alliance (YMM 1.44%) were up nearly 20%.
So what
Last July, the Chinese government banned DiDi from Chinese app stores after the company was "found to have severely violated the laws by illegally collecting and using personal information." The order came just days after DiDi conducted its initial public offering on the New York Stock Exchange (NYSE), as Beijing took a harsh regulatory approach to Chinese tech companies.
Image source: Getty Images.
The crackdown significantly hurt DiDi's bottom line, with the company reporting a widening net loss equivalent to $7.42 billion in 2021 after reporting a $1.6 billion loss in 2020. Shares of DiDi plunged and even after today's rally are still down more than 82% since going public.
Additionally, DiDi has since chosen to leave the NYSE and list its shares in Hong Kong. When DiDi initially went public in the U.S., Chinese regulators were not happy, believing the listing could lead to sensitive data being revealed to foreign countries like the U.S.
In a report this morning, The Wall Street Journal, citing anonymous sources, reported the Chinese government is preparing to end its investigation of DiDi as soon as this week and allow DiDi's app back on Chinese app stores. This will also allow DiDi to resume adding new users, which is obviously key for a fast-growing tech company.
Along with easing up on DiDi, the Chinese government is allegedly also preparing to let other apps that were previously banned back onto app stores, which will also allow them to resume adding new users. Those companies include Kanzhun and Full Truck Alliance, which were pulled from app stores for similar reasons as DiDi around the same time last year as well.
Now what
Last year, the Chinese government took a very harsh regulatory stance toward foreign-listed Chinese companies and high-growth Chinese tech companies, largely due to data concerns.
But the resurgence of COVID-19 earlier this year resulted in the Chinese government ordering lockdowns in major cities across the country and putting pressure on gross domestic product (GDP) growth targets set by the Chinese government.
With many banks downgrading their outlook for Chinese growth GDP in 2022, the Chinese government has taken a much more receptive stance to Chinese tech stocks in order to boost the economy.
At first, many were unsure if it was just talk, but recently the Chinese government has begun to take action as well. It has begun working with the U.S. government on a long-standing auditing dispute that, if passed, will prevent many Chinese stocks listed on U.S. exchanges from being delisted. The Chinese government has also conducted stimulus initiatives and now begun to allow some companies back onto the app stores.
I am definitely starting to believe that the Chinese government is easing its stance and creating a more business-friendly environment, which is great for Chinese stocks. DiDi will likely lose of some of its liquidity after delisting from the NYSE but the move may also appease Chinese regulators.
Additionally, with all of these stocks all trading at depressed levels, I think it's time to start taking a look. Before you invest, make sure to also do your due diligence on the regulatory landscape in China, as it can be heavily influential on Chinese stocks.
