WeChat, Alipay apps remove Didi for new users

Myles Udland, Brian Sozzi, and Julie Hyman break down the latest with Didi, which took another blow when China removed Didi for new users on WeChat and Alipay.

Video transcript

MYLES UDLAND: See stocks higher here as we get today's trading session underway. One stock that was under pressure in premarket trading-- it's been a big story this week-- is, of course, Didi. The stock falling sharply during yesterday's session, and we see off another 5%. News that the company's main app has been removed from WeChat as well as Alipay. Yahoo Finance's Akiko Fujita joins us now with the latest on this story, Akiko, which continues to get a little bit more muddled and a little bit less constructive, I guess we could say, in terms of Didi being able to reassure the market about the state of its operations.

AKIKO FUJITA: Yeah. And it feels like we're getting a little more clarity on what exactly the motive of the Chinese government regulators are, in terms of cracking down on Didi. But let's start with that story you just alluded to, in terms of the Didi being removed from WeChat as well as Alipay. And of course, yesterday, we were talking about regulators calling on those apps to be pulled from the App Store. Now, WeChat and Alipay certainly not app stores, but this is a significant development largely because of the big userbase within both apps. We're talking about these Chinese super apps where everything on mobile evolves around these apps, whether it's transactions as well as interactions.

WeChat has a billion users. Alipay has 900 million. And now, the apps had provided a shortcut for users to be able to get into the Didi app. That has since been removed. So while users who've already downloaded Didi can still access it, they wouldn't be able to do it through these apps, so that would create another hurdle to getting through to the app. Now, separate from that, we did get additional developments from Chinese regulators, specifically Bloomberg reporting the Securities Regulatory Commission in China is looking to revise rules for overseas listings to specifically crack down on companies that use a structure known as a variable interest entity, or VIE.

Now, that structure allows companies to transfer profits to an offshore entity registered in places, like the Cayman Islands, with shares that foreign investors can then own. Now, many companies, including Alibaba, Didi, Tencent, have [? already ?] been using this structure for years, and it has allowed firms to exploit a loophole, largely because the regulations, as they stand on the books in China, don't necessarily make reference to companies that are registered outside of the mainland within these jurisdictions.

The revised rules would require those firms to seek regulatory approval before listing outside of the mainland. And for firms that are already public, they would now need approval for additional share offerings in offshore markets. And we're mentioning this, obviously, because of Didi, as well as those other companies, like an Alibaba, that trades in the US. But this could also create huge hurdles for companies that are seeking a listing outside of the mainland.

A lot of people looking at ByteDance, which is the parent company for TikTok. They've been looking at a listing overseas. There are now questions about whether, in fact, they could delay that further, or they could potentially be forced to list a little closer to home, guys.

MYLES UDLAND: So I mean, Akiko, it's kind of one of these-- we talked about this yesterday with this story. Where, you know, you have Chinese regulators want to accomplish a certain goal, but maybe they go about doing it in unconventional ways, let's say. But is there common ground here between what Janet Yellen and Treasury wants to do and what Chinese regulators want to do, in terms of closing some of those loopholes? Because that's where my mind went in talking about the VIEs.

AKIKO FUJITA: Yeah. It's interesting to see this. Because while regulators haven't officially recognized VIEs, regulators have known about it for years. This dates back to the early 2000s, in terms of these structures being used for Chinese companies who are listing overseas. Now, yesterday, we talked about this. There have been concerns within the US as well, lawmakers really pushing for increased transparency for these companies that are registered in places like the Cayman Islands.

So it does seem like increasingly these Chinese companies are being squeezed on both ends. And Jared just alluded to this. He said he'd be surprised if any Chinese ADRs would be traded in the US five years from now. You know, Miles, the other day I was thinking back to a conversation I had back in 2019, when those who were pushing for these laws were saying, look, this is going to be the reality moving forward. Now, it seems as though Chinese regulators are catching up to that and saying, look, you can list overseas, but if you do, you have to play by our rules.

MYLES UDLAND: Yeah, well. You know, look. With the number of SPACs that are out there, maybe we can replace some of the Chinese ADRs with, you know, more oatmilk companies, or something like that. Keep the markets churning with a different composition. All right. Akiko Fujita with the latest on the evolving Didi story. And of course, main implication here, stock remains under pressure off an additional 5% this morning.