BY Fraser Tennant
In a move that will bring to an end an intense rivalry in the ride-hailing market in China, transportation company Didi Chuxing is to acquire the business of taxi-booking app firm Uber Technology Inc in a $35bn deal.
Once the transaction is complete, Uber China (owned by US-based Uber and the Chinese web services company Baidu Inc) will hold a 20 percent stake in the new company.
Although the two firms have been rivals in the ride-hailing market for years, Didi Chuxing, which has the backing of Chinese internet giants Tencent and Alibaba, is the dominant force, with an 87 percent market share in China (around 14 million journeys every day).
Beijing-based Didi Chuxing also has the backing of Apple, which invested $1bn in the firm in May 2016.
Conversely, and despite the support provided by internet giant Baidu, Uber China has been less successful, having failed to make a profit since its launch in 2014. Indeed, Uber revealed in February 2016 that it has been losing $1bn a year on account of its operations in China.
"Funding their China dreams was becoming too expensive for Uber,” said Duncan Clark, chairman of Beijing-based consultancy BDA, in an interview with the BBC. “One thing to watch carefully is how quickly consumers feel the impact as subsidies are withdrawn."
The subsidies referred to by Clark, which are believed to be considerable, are a product of the rivalry between the two firms. Now that the acquisition has been announced, these subsidies are likely to be much less prevalent.
Coincidentally, the Didi Chuxing/Uber deal comes just days after the introduction of a new legal framework in China for taxi-ordering apps. Welcomed by both ride-hailing firms, the decision seeks to address a grey area which saw the business of normal taxi operators undermined due to the popularity of taxi-booking apps.
The new rules, expected to take effect on 1 November 2016, are also likely to prevent ride-hailing firms operating below cost and to restrict the extent of the aforementioned subsidies.
Despite Uber’s decision to merge its China operations with Didi Chuxing, the firm has aggressive plans for expansion elsewhere, including a $500m investment in developing its own mapping system and the launch of its UberEats project in Australia and London.