Chinese ride-hailing company Didi offers cars for guests of the Annual Meeting of the New Champions 2017 (World Economic Forum’s Summer Davos session) on June 27, 2017, in Dalian, Liaoning Province of China.
VCG | Visual China Group | Getty Images
BEIJING — As overseas investors reel from Beijing’s regulatory crackdown, the rapid fallout in an industry like after-school tutoring can be a guide to what went wrong, and where future opportunities lie in China.
Before China cracked down on tutoring schools this summer, major investment firms like SoftBank were pouring billions of dollars into Chinese education companies, many of which were publicly traded in the U.S. or on their way to listing there.
The strategy was one of burning cash to fund exponential user growth, with hopes of profit in the future. For the strategy to work, investors aimed for a “winner takes all” approach that they’d used with other Chinese start-ups such as coffee chain Luckin Coffee and ride-hailing company Didi.
Didi essentially paid Chinese consumers to take cheap rides through its app, beating out Uber to dominate about 90% of the mainland market, and went on to raise more than $4 billion in a New York IPO on June 30.
But it soon became clear that investment strategy might no longer work. Just days after Didi’s IPO, Chinese authorities ordered app stores to remove Didi’s app and began investigations into data security — effectively shutting down the business’s growth prospects in the near…