Outward bound

Apple ally Didi highlights China's tech muddle

Red-hot car app Didi Chuxing exposes China's muddled thinking on technology. Last year the People's Republic wanted overseas-listed tech companies to return. Now, some of these buyouts are struggling while Reuters says Didi, just boosted by a $1-billion investment from Apple, is mulling an eventual US flotation. Unless life gets easier at home, the sector's biggest stars will keep looking overseas.

Soaring valuations in Shenzhen and Shanghai spurred a wave of Chinese companies, mostly in tech, to try to quit US markets for the mainland. Premier Li Keqiang and other powerful voices supported the homecoming. Proposals for a new, Nasdaq-style board in Shanghai added to the momentum.
 
Since then, a market crash, botched efforts to prop stocks up, and a slowing economy have shifted the debate. China's A-share market remains effectively closed to new listings: almost 800 companies are waiting for approval to list, while a much-anticipated switch to a registration-based system has been delayed. Meanwhile the securities regulator is studying foreign-listed groups pursing "back-door" mainland listings. And the new board was cut from the final version of China's 13th Five Year Plan.

So the viability of many buyouts is now in question. Shares of the $9.3-billion Qihoo, the largest take-private so far, trade seven per cent below its buyout price, a big discount for a deal that has been approved by shareholders. Investors have shelved a $2.5-billion buyout of online-streaming site YY, according to The Wall Street Journal.

Meanwhile, Didi has ruled out an initial public offering (IPO) in China, Reuters says. Didi says it has no current IPO plans and so there is no point talking about location. Either way, though, rules requiring three consecutive years of profitability - which the new board might have waived - could be one problem: the $25-billion start-up is spending billions of dollars a year in subsidies to take on Uber China. A foreign listing might also be better for some of Didi's backers. Meanwhile Lufax, a financial technology hotshot, may list in Hong Kong.

There is a big contradiction here. Tech is China's hottest sector, and the country is eager to be self-sufficient in everything from semiconductors to capital markets funding. But as things stand, more of the industry's success stories could follow the $200-billion Alibaba to foreign exchanges.