For China’s Business Elites, Staying Out of Politics Is No Longer an Option

Liu Chuanzhi, the founder of the tech company Lenovo and a towering figure in China’s private sector, has long held the view that business people should steer clear of politics. Yet he recently found out firsthand that in President Xi Jinping’s China, which is engaged in a tech Cold War with the United States, business cannot just be business.

Over the past week, Mr. Liu became collateral damage when the ride-hailing giant Didi, where his daughter Jean Liu is a top executive, came under fire after its blockbuster initial public offering in New York.

Chinese regulators ordered the company, where Ms. Liu is president, to stop signing up new users. They said Didi should also be pulled from Chinese app stores because of national security concerns and to protect the data of Chinese users.

The Chinese internet immediately savaged Didi and Ms. Liu — and then Mr. Liu. A hashtag, #Didiapppulledfromappstores, which was started by the official People’s Daily, was viewed more than one billion times over a 24-hour period on the Chinese social media platform Weibo. Weibo users called Didi a “traitor” and a “walking dog of the United States.” They urged the government to also punish Mr. Liu for selling out national interests.

Beijing’s actions against Didi — and the ensuing fallout — were part of a broadening crackdown by China against its homegrown tech companies. The shift began last November when regulators quashed the I.P.O. of Ant Group, the tech and financial company run by the billionaire Jack Ma. At the time, many viewed Beijing’s moves against Ant and Mr. Ma as inevitable to rein in the power of Big Tech.

This time, the clampdown on Didi may have an even deeper impact. The actions against Didi are a strong signal from Beijing to discourage listings of Chinese tech companies in the United States, business people and entrepreneurs said, especially as the two countries battle for tech supremacy.

By going after Didi and a few other U.S.-listed internet companies for data security concerns, Beijing has effectively laid the last brick of the digital Berlin Wall that increasingly separates the Chinese internet from the rest of the world. Beijing has made it clear that it is serious about keeping important data within its borders while pressuring its tech elites, who are among the biggest beneficiaries of globalization, to show their loyalty and obedience, they said.

On Tuesday, China punctuated the change by announcing that it would enhance rules on data security and cross-border data flows for Chinese companies seeking to sell shares abroad. The changes were designed to ensure that companies listed abroad would take their responsibilities in information security seriously.

Internet infrastructure operators like Didi must now prove their political and legal legitimacy to the government, Ma Changbo, an online media start-up founder, wrote on his WeChat social media account.

“This is the second half of the U.S.-China decoupling,” he wrote. “In the capital market, the model of playing both sides of the fence is coming to an end.”

Didi, Ms. Liu and Mr. Liu didn’t immediately respond to requests for comment.

China’s internet companies have benefited from the best of two worlds since the 1990s. Many received foreign venture funding — Alibaba, the e-commerce giant, was funded by Yahoo and SoftBank, while Tencent, another internet titan, was backed by South Africa’s Naspers. They also copied their business models from Silicon Valley companies.

The Chinese companies gained further advantages when Beijing blocked almost all big American internet companies from its domestic market, giving its home players plenty of room to grow. Many Chinese internet firms later went public in New York, where investors have a bigger appetite for innovative and risky start-ups than in Shanghai or Hong Kong. So far this year, more than 35 Chinese companies have gone public in the United States.

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    Now the Didi crackdown is changing the calculations for many in China’s tech industry. One entrepreneur who has set her sights on a listing in New York for her enterprise software start-up said it would be harder to go public in Hong Kong with a high valuation because what her company does — software as a service — is a relatively new idea in China.

    A venture capitalist in Beijing added that because of China’s data security requirements, it was now unlikely that start-ups in artificial intelligence and software as a service would consider going public in New York. Few people were willing to speak on the record for fear of retaliation by Beijing.

    At the same time, the United States has become more hostile to Chinese tech companies and investors. As Washington has ramped up its scrutiny of deals that involve sensitive technologies, it has become almost impossible for Chinese venture firms to invest in Silicon Valley start-ups, several investors said.

    In May, U.S. lawmakers introduced a bill to ban Chinese firms from listing on U.S. exchanges if they didn’t comply with the same auditing standards as American companies. After Didi filed for its I.P.O., Senator Marco Rubio, Republican of Florida, urged American regulators to block the listing.

    Caught between an increasingly authoritarian government and an escalating geopolitical rift with the United States, China’s tech entrepreneurs and investors said they needed to rethink their positions in the new world.

    That is especially true for people like the Lius, who are a kind of royal family in China’s tech industry. When Lenovo acquired IBM’s personal computer division in 2005, Mr. Liu became the first Chinese chief executive to lead the takeover of a major American business.

    Ms. Liu herself is a true product of globalization. After graduating from Harvard University, she spent over a decade at Goldman Sachs before joining Didi in 2014. Known as a “fund-raising machine,” she helped the ride-hailing firm secure billions of dollars from investors, including SoftBank and Apple.

    She also helped Didi pull off the high-wire act of going public. The company was among the Chinese tech giants that had come under increasing regulatory scrutiny since late last year. The company was fined in April for failing to clear mergers and acquisition transactions. It was also reprimanded and lectured by regulators to compete fairly and treat its drivers and passengers fairly.

    When Didi set its I.P.O. date on June 30, a day before the Chinese Communist Party celebrated its centenary, it kept a low profile. It didn’t set up a ceremony to ring the bell at the New York Stock Exchange, even virtually, which has been a tradition for companies that go public. Didi also urged its employees to refrain from sharing any celebratory messages on social media.

    Two days later, Chinese regulators struck.

    In response, Didi denied that because it had gone public in New York, it had to turn over user data to the United States. A Didi executive said on social media that the company stored all its Chinese data on servers in China.

    But many articles and social media posts pointed fingers at the company and some online users said they had deleted the app. The attacks soon turned personal.

    “Didi sold the country for its own benefit!” screamed the headline of one popular online post. “Liu Chuanzhi will become the next Jack Ma who deserves to be cracked down!”

    For Mr. Liu — who had made his no politics remark in the summer of 2013, shortly after Mr. Xi came to power and started cracking down on influential online voices — it was clear that his longtime strategy would no longer keep him out of the fray. Whether he likes it or not, politics and tech in China are now inextricably intertwined.

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