DiDi Global (NYSE:DIDI) took a risk with its recent IPO. As a result, DIDI stock suffered. The Beijing-based ride share company has, however, shown some resilience following its precipitous drop. 

However, it’s best to start by understanding the push and pull which left DiDi Global in a precarious position. That precarious position opens DiDi to scrutiny that it doesn’t want or need: Beijing’s firm hand.

DiDi had raised billions of dollars by early June from prominent venture capitalists. It faced significant pressure to follow through with its U.S. IPO as a result. Yet, weeks earlier the Cyberspace Administration of China, the country’s cyber watchdog, had urged that DiDi delay its IPO. 

The Cyberspace Administration of China worried that the company’s data could fall into foreign hands. The U.S. listing requires a greater degree of public disclosure and the watchdog suggested a deep network security audit would be warranted. 

DiDi went ahead and listed on June 30, exercising its best judgment in the face of the catch-22. 

It looked like things might be OK and that DIDI stock would avoid trouble. Share prices went from $14.14 at the IPO opening to $16.40 at market close on July 1. 

That upward run was extremely short-lived.  

On July 2, the Cyberspace Administration of China launched its own review of DiDi’s security and blocked access to its app for any new users. Then it ordered app stores to pull the app from their platforms two days later. Subsequent announcements indicate that the bans affected China’s domestic market solely.

DiDi Global share prices would drop from $16.40 to $11.21 in the following span of seven days. 

This movement and the rift in expectations has caused a lot of questions to arise. Some are questioning who knew what, and who bears the blame for the dramatic series of events. 

DiDi Appears Culpable

An article in the Wall Street Journal provides some damning testimony against DiDi and its management in the U.S. listing. DiDi looks to have been telling U.S. bankers involved in the deal that regulatory issues wouldn’t be a problem at all. 

Chinese regulators were under the impression that DiDi would put the IPO on hold pending a thorough security audit. Meanwhile, management at DiDi was pushing the deal through and assuring U.S. bankers that Beijing had given the all clear. 

As a result stakeholders on all sides are scrambling to understand the implications. 

Investors in the U.S. are eager to know how this listing actually went ahead given what has come to light. DiDi is facing massive scrutiny from stakeholders based here. Back home, the Cyberspace Administration of China is left pondering the same questions. 

Beijing’s Increasingly Strong Hand

I got the impression that DiDi was somehow hoping it could slip past Beijing on this one. The idea being that it somehow thought that once it had gone through with the U.S. listing that Beijing would back down. 

Or perhaps DiDi knew that it would get caught, and forged ahead anyhow. In that case DiDi may have made a calculated bet that the potential of being U.S. listed outweighs the potential fine. Beijing did levy a $2.8 billion against Alibaba (NYSE:BABA) back in April after all. That can’t have escaped DiDi’s calculus in the matter. 

In either case Beijing has become increasingly strict and has expressed concerns about technology companies and the risk to Chinese national security. If DiDi’s documents do contain the sensitive information and data that China worries they may have, retribution could be swift. 

China was wise to pause and understand the implications of its technology companies and their international aspirations. This was true when it took a harder stance months ago. This fits well with the national character of playing the long game. I’d imagine that Beijing is going to make an example of DiDi regardless of how much information was exposed. 

I can imagine things could get worse from here and that DIDI stock will suffer again.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.