China’s biggest ride-hailing company, Didi, is the latest casualty of Beijing’s effort to rein in upstart tech companies that had been left to their own devices in the absence of proper regulation.

The Cyberspace Administration of China’s ban on Didi listing its app on mobile app stores in China, only days after the company floated on the New York stock exchange, prompted a sharp selloff of Didi’s shares. The debacle has angered investors after it was reported that Chinese authorities had for months cautioned Didi against rushing into a US listing owing to data security concerns.

Didi is now facing potential lawsuits filed by shareholders in federal courts in New York and Los Angeles. Didi did not immediately respond to the Guardian’s request for comment.

For Beijing, Didi is just another target in a relatively recent strategy to reshape the relationship between the state and tech firms after years of what has been described as “barbaric growth” – a popular phrase in Chinese lexicon that describes an anarchical expansion.

“In the barbaric growth stage, internet companies have been laissez-faire about [security and compliance]. In addition to longstanding problems such as personal information collection and cross-border data flow, there are also huge hidden dangers at the capital level,” Fang Xingdong, a former internet entrepreneur and currently director of the Consortium of Internet and Society Communication at the University of Zhejiang, wrote in the state-run Global Times on 6 July.

Fang says the root cause of many of the problems associated with the Chinese internet today was a lack of regulation and compliance. “This is a long-term debt, and [the current crackdown is a] catch-up lesson,” he adds.

Over the past two years, multiple state agencies – from the financial regulators to the new market watchdog and the cybersecurity authorities – have been drafting new rules to regulate China’s booming tech sector, long before Didi’s New York listing. Earlier this year, the People’s Bank of China proposed tightening rules for businesses that collect personal and corporate credit data, as it vowed to improve data privacy protection.

But as well as protecting consumers, this is also about control – control of what companies do and control of the massive amounts of data they collect about their users. It is an issue that has become even more urgent today as tensions between the US and China deepen.

“In Beijing’s control of data, ‘sovereignty’ is [now] prized more than ever in the context of US-China tensions,” says Duncan Clark, a Beijing-based veteran tech investor and author of a book on Alibaba, the e-commerce giant founded by Jack Ma. “And in reasserting the state’s authority over big tech, China wants to reduce – or eliminate – vulnerabilities.”

But this is also a fine line to tread for the state, Clark says. “[After all], the state and its tech firms need each other, as tech companies drive innovation, efficiency and stimulate the consumer economy.”

Geopolitical tensions cannot be ignored. The change in the mood in both Washington and Beijing have led to more distrust in nearly every aspect of the bilateral relationship. This is also reflected in the increasingly fierce battle for the supremacy of rules between the two capitals.

For years, regulators on both sides have been in dispute over access to audits of US-listed Chinese companies. In frustration at the lack of progress, the US Congress passed a law late last year that could trigger the removal of Chinese companies from US stock exchanges, if their audits cannot be inspected by the US auditing watchdog.

The risk now is that New York listings for Chinese companies will be increasingly difficult, not only because of the actions of Chinese regulators but also because US investors, having been burned yet again, will be wary of buying shares in any further Chinese IPOs.

Clark says that despite all the tightening of rules on both sides of the Pacific, ambitious Chinese companies would still prefer a non-domestic listing. “It gives them the prestige of being listed in markets outside mainland China. It also gives them a practical way of achieving some degree of freedom from regulatory constraints at home.”