The driving force

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There are many business risks companies face in China. In Uber’s case its executives face an existential threat: can it even operate there? The government is currently working on new regulations for online ride hailing and it is thought these will make plain whether Uber is permitted. Taxi drivers are among those hoping the American firm will be banned from the roads.

So it was a fairly big vote of confidence in Uber’s future when a group of powerful Chinese firms invested almost $2 billion in Uber’s Chinese entity last week, valuing the unit at $7 billion. According to Chinese media the consortium included insurance giant China Life, state-linked carrier Hainan Airlines Group, financial giants Minsheng Bank and Citic Group, as well as top homebuilder Vanke.

Uber’s boss Travis Kalanick says the new funds will be used to pay for his firm’s relentless expansion in China, where his main competition is from the Alibaba and Tencent backed Didi Kuaidi, which has a roughly 80% market share. The fact that so many government-related companies seem willing to pump cash into Didi’s US rival has buoyed Kalanick’s confidence. In a recent interview with the Financial Times, he even rubbished his local rival’s prospects, saying that to enlist and retain drivers for its service Didi needs to spend $4 billion annually in subsidies, which he deemed unsustainable.

Didi, which in its most recent fundraising was valued at $15 billion, refuted this calculation and said Uber was using “crazy creativity for our subsidy figures”. On the contrary, it insists it is more efficient than Uber in China owing to its far bigger scale.

Didi also seems to think its business model is less exposed to potential regulatory changes since 75% of its drivers are professional (such as taxi drivers using it to look for rides) rather than part-timers using Uber’s ‘sharing economy’ model.

China Business points out that Uber has been cutting its driver subsidies to improve its bottom line, but this hasn’t endeared it to this group. “The direct response to the subsidy reduction is that drivers are getting frustrated and less enthusiastic about Uber,” China Business wrote. “One Uber driver told our reporter that the number of times he uses Uber to pick up passengers has got fewer and fewer.”

Didi – which counts China Life rival Ping An among its Chinese investors – now operates in 350 cities and towns and according to Forbes it claims to break even in 100 of those markets. Uber is currently in 22 cities and hopes to reach 100 within a year.

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