Kyle Bass says China’s crackdown on Didi is a “big anarchy” for America

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New York CNN Business –

Kyle Bass, a hedge fund manager and outspoken critic of Beijing, says the timing of the Chinese crackdown on delivery app Didi is no accident.

“The Chinese believe very strongly in symbolism and numerology,” Bass told CNN Business on Wednesday. “Banning the initial public offering that went public in the United States — with American investor money — on our Independence Day was essentially a big FU for the United States.”

Didi’s shares collapsed 20% Tuesday after Chinese regulators announced on July 4 that they were banning the platform from app stores in the country because it poses cybersecurity risks and breaches privacy laws.

Didi, one of the world’s largest passenger services companies, raised $4.4 billion by listing its shares on the New York Stock Exchange on June 30. It was the largest initial public offering in the United States by a Chinese company since 2014. It launched an investigation into Didi that escalated further last weekend.

“They knew this was going public. They knew they were going to ban the app from app stores and shut it down,” said Bass, Hayman Capital founder and chief investment officer. “Nothing happens without demand and pleasure. [Chinese President] Xi Jinping.”

The fact that China’s campaign was only made public after Didi was publicly announced has cost some American investors dearly. Didi relies heavily on its home market for revenue. The company’s market value fell to $57 billion on Wednesday, down from about $70 billion the day it went public.

However, unnamed sources told the Wall Street Journal that China’s cybersecurity watchdog has suggested Didi delay its initial public offering.

In a statement on Sunday, Didi said it would “strive to correct any issues, improve awareness of risks and technological capabilities, protect users’ privacy and data security, and continue to provide safe and convenient services to its users.”

Bass, who successfully bet on the collapse of the US housing market before the Great Recession, has become a staunch opponent of the Chinese community party. In the interview, he called on US financial regulators to do more to protect US investors from the whims of Chinese regulators.

Specifically, Bass urged the Securities and Exchange Commission to allow investors who bought Didi’s shares to cancel the deal and get their money back. He cited federal securities laws that allow for cancellation if stock buyers were not aware of an error or omission at the time of purchase. It is not clear whether that would apply in this case.

“Send the money to the investors,” Bass said. “Obviously it was sold under false pretenses, and therefore fraudulently.”

Bass criticized the SEC more broadly for allowing Chinese companies to list shares on US exchanges even though these companies do not need to submit to US auditing standards. “It’s crazy,” he said. The SEC’s job is to protect investors.

The Securities and Exchange Commission did not respond to requests for comment.

China’s crackdown goes beyond Didi. On Monday, Chinese authorities announced they had launched investigations into other US-listed technology companies, including truck recall platforms Yunman and Huochebang as well as job listing site Boss Zhipin. All three were recently announced in the United States. As a result of investigations, new users cannot register on these apps.

The Invesco Golden Dragon China ETF (PGJ), which tracks the performance of US-listed Chinese stocks, has lost more than a third of its value since February.

Didi’s failed initial public offering draws more attention to the risks facing US investors.

This is despite recent restrictions imposed by Washington, including a law signed by President Donald Trump last year that prohibits Americans from investing in companies the US government suspects are either owned or controlled by the Chinese military.

Trump also signed into law a law that would expel Chinese companies from US exchanges if they fail to comply with US auditing standards for three consecutive years.

Essentially, this says that Chinese companies can rape and pillage American investors over the next three years. “We just saw the net result,” Bass said.

Republican Senator Marco Rubio told the Financial Times that allowing Didi to sell shares was “reckless and irresponsible”.

“Even if stocks rebound, US investors still don’t have an insight into the company’s financial strength because the Chinese Communist Party prevents US regulators from reviewing the books,” Rubio told the UK newspaper. “This is jeopardizing the investments of American retirees and diverting much-needed US dollars to Beijing.”

Bass criticized brokers, fund managers and institutional investors for buying Chinese initial public offerings (IPOs) listed in the United States despite concerns about the sanctity of their financial records.

“You never know if the numbers they give you are correct. If you lose money, you should lose your job,” Bass said.

However, many investors don’t want to miss out on massive gains if these stocks, also known as FOMOs, rise, or fear losing them.

“FOMO will get the most gullible people going,” Bass said. And maybe they should lose their money. If you want to set your money on fire, go and do it.”

CNN Business’s Laura He and Paul R. Lamonica contributed to this report

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