Internet & Tech, Talking Point

Demolition derby

Didi and Uber’s epic fundraising battle fuels merger talks

Jean Liu, the president of Didi Kuaidi, answers a question in Beijing

Jean Liu: the boss of Didi Chuxing and also the daughter of China’s “godfather of capitalists”

When it comes to being victorious, Chinese history suggests it helps to have a Liu at the helm. The Liu family has produced the highest number of Chinese emperors (66, in case you’re wondering, as well as former Chinese President Liu Shaoqi). One of the most prominent Lius, Liu Bang, founded the Han Dynasty and his descendants ruled China for more than four centuries.

Two Lius in modern China are also intent on building empires (though to be accurate, while their name is pronounced the same as the imperial Liu, the Chinese character they use is actually different). They are Jean Liu, president of Didi Chuxing, and Liu Zhen, a former Silicon Valley lawyer, who is Uber’s most senior executive in China.


The two not only share the same surname but even come from the same family. Jean Liu is the daughter of Lenovo founder Liu Chuanzhi, who is also the uncle of Liu Zhen.

The Liu cousins have just taken their sibling rivalry to a new level this month as both Didi and Uber have completed another round of multibillion fundraising.

Didi’s latest $7.3 billion fundraising was announced a few weeks after Uber’s $3.5 billion cash infusion. That has led to reams of newsprint about where their rivalry is heading and how self-defeating it may prove if both firms continue to burn cash at their current rate by discounting fares and subsidising drivers. Who will win?

Let the battle commence

One of Didi’s first institutional investors was Allen Zhu from GSR Ventures. He compares the scale of the current fundraisings to an actual war, citing the $60 billion cost of the first Gulf War.

He tells the Wall Street Journal, “Between them they’ve raised $20 billion. It’s very much like a war, but they can’t keep fighting like this. It’s got to stop before it reaches $30 billion.”

Uber’s head of Asian operations, Allen Penn, acknowledged the China problem at a conference in Hong Kong earlier this month. “The scale of the opportunity and the scale of prior investment to address that, as well as the competitive factor, has really pushed the spend levels, at some times, to irrational levels,” he admitted.

Both companies remain unlisted, but have been adept at alluding to their potential valuations without releasing detailed numbers to back them up. Over the past week sources close to Didi have variously implied a current valuation of between $25 billion and $28 billion. That’s not bad considering the original entity, the Alibaba-backed Didi Dache, was only formed in 2012 before merging with the Tencent-invested Kuaidi Dache in February last year to present a united front against Uber China.

Didi’s latest fundraising round comprises $4.5 billion in equity from a group of new and existing sponsors including Apple, Alibaba and Ant Financial. In a sign that some investors want to protect themselves from potentially frothy valuations, part of the funding was structured as debt incorporating a $2.5 billion syndicated loan led by China Merchants Bank and $300 million in debt from China Life.

Apple contributed $1 billion to the latest Didi fundraising in a deal announced in May. A number of newspapers say Uber had also been hoping to get Apple on board, but Didi beat it to the punch.

Jean Liu and Apple CEO, Tim Cook, share much in common, not least a fierce work ethic. Cook famously emails employees and sets up meetings at all hours of the day or night, while the Chinese press report that Liu was still on a conference call to Apple as she was about to be wheeled in for a breast cancer operation – and was back on the phone to the Cupertino company immediately after she came round from surgery.

As we reported in WiC325, there are a number of reasons why Apple may have made the Didi investment, not least rebuilding some bridges in China after being blocked from selling its music and films on censorship grounds. Looking further ahead the investment probably says something about its desire to lay the groundwork for an iCar too.

Earlier this month Liu spoke to the MIT Technology Review, describing the hook-up as a “speed date” and describing Didi’s relationship with Apple as “still under discussion”. One suggestion: it could involve using the latter’s voice recognition technology.

The latest fundraising reportedly ups Didi’s war chest to about $10.5 billion. One year ago, its last fundraising round raised $3 billion from investors including CIC, Temasek, Alibaba, Tencent and Hillhouse Capital. At that point, Didi had a post-deal valuation of $16.5 billion according to S&P Global Market Intelligence data, nearly half its current level.

How much has Uber raised?

Uber has now raised more than Facebook at a similar stage in its history, making it the most expensively valued VC-backed company on record. Meanwhile, Uber China was established as a standalone entity last year in a bid to make sure Uber succeeds in a country where many Western corporations have tried and failed.

On a global level, Uber commands a post-money valuation of $62.5 billion according to S&P Global. Its most recent cash injection came from the Saudi sovereign wealth fund, which ploughed in $3.5 billion at the beginning of June and gained a board seat. Analysts believe the US firm could be sitting on as much as $15 billion in cash.

Some of the Saudi money is being redirected to Uber China, which is valued at about $8 billion according to various media outlets. CEO Travis Kalanick has previously said that if Uber China doesn’t take part in the “fundraising bonanza” it will “get squeezed out by others buying market share”.

He is also determined to make Uber “authentically Chinese,” or Chinese enough so that the government won’t favour its local rival. As such, many of Uber China’s investors are state-affiliated entities such as Citic Securities, Guangzhou Auto and China Life. All three participated in a previous fundraising round that closed in January.

Some of the American firm’s Chinese shareholders are looking for broader business opportunities. For instance, Guangzhou Auto and Uber China have signed a strategic cooperation agreement to provide auto loans and electric cars for drivers and passengers. (Didi, meanwhile, is partnering with China Merchants Bank to help drivers to secure car loans.)

China’s largest privately-owned airline group, HNA, also participated in the January fundraising and in early June Uber China launched its Uber+Travel strategy. This aims to provide a seamless link between business or leisure travel and commuting. That also fits into Uber’s grand plan to create a global alliance similar to those run by airlines such as One World.

Unsurprisingly Didi has a similar aim and is trying to break Uber’s global hegemony through an alliance with Lyft and General Motors, which aims to create a fleet of autonomous on-demand vehicles.

Another Uber+Travel partner is e-commerce portal Earlier this year, Zhang Zetian (aka the “Milk Tea Girl”, see WiC231), wife of’s founder Richard Liu, invested an undisclosed sum into the company.

Is Uber making headway?

Data from Analysys suggests Uber has grabbed significant market share over the past year mostly at the expense of smaller competitors such as Yidao.

As we reported earlier this month, the industry data for Chinese internet firms may not always be accurate (see WiC327). But it is widely reported that Didi accounts for more than 80% of local market share (i.e. for bookings of car rides online in China). Uber argues its China unit operates in fewer cities, but in them has one third of the market. Liu Zhen recently told a conference that Uber will overtake Didi within a year (her cousin responded by describing Uber’s strategy as “cute”). Liu Zhen also said Uber now operates in 60 cities, with a near-term target of 100 compared to Didi’s 400. However, much of the taxi hailing market is concentrated in a few major cities led by Beijing (14.2%), Shanghai (13.6%) and Hangzhou (12.1%) according to analysts.

Both companies emphasise that they are on the road to profitability. In fact, Didi claims it is profitable in 200 cities.

However, the duo has also been locked in a price war and an iResearch survey highlights how difficult it is for both firms to retain their customers: 63.6% said their decision is based purely on price. Over the medium term, analysts believe service quality may become more important and as we reported in WiC325, security is also an issue following the murder of a teacher who used a Didi cab in Shenzhen.

What does the government think?

The biggest uncertainty facing the car hailing firms, as with many other industries in China, is regulatory intervention. Many municipal governments have already passed regulations banning the use of private cars for chauffeuring services. The Ministry of Transport (MoT) got in on the act last October when it issued draft regulations, many of which disquieted executives at both Didi and Uber. These intimated that ministry officials want proper labour contracts for drivers, who will also be required to register with one booking platform. Were such rules to become law they would undermine the asset-light business model adopted by both Didi and Uber.

Forcing drivers to register their cars on a commercial basis – another proposed regulation – not only goes against the ethos of the sharing economy, but will also make the job uneconomic for part-time drivers (who will have to purchase a new car every eight years).

However, as the Financial Times points out the Chinese government does not itself present a united front on this regulatory issue. The MoT is keen to protect the rights of taxi drivers. But within other parts of the administration, Didi and Uber China represent icons of ‘innovation’ which policymakers want to encourage. “The State Council, China’s cabinet, asked the ministry of transport to revise the regulations, sparking a debate that is ongoing,” reports the FT.

The Chinese government is well aware of the sharing economy’s potential. Figures from the National Information Centre estimated its size at Rmb1.95 trillion ($299 billion) at the end of 2015 and projects it could grow by 40% per year to 10% of GDP by 2020.

How about a Didi-Uber merger?

If Didi Dache and Kuaidi Dache, backed respectively by archrivals Alibaba and Tencent, could put their differences aside, why not Didi and Uber? Perhaps that’s why some of Didi and Uber China’s investors (China Life has made bets on both) are reportedly suggesting the two ride-hailing apps should consider a similar “merger” to prevent an escalating price war from burning through their cash.

Such a merger would require the approval of anti-trust regulators and it looks unlikely Beijing would want one company to dominate the entire sector.

The idea sounds not too unthinkable for Lee Kai-fu, the former head of Google China, who told the Wall Street Journal that combining Didi and Uber’s China divisions would fit the trend of consolidation in the internet industry. This may not happen though, Lee suggested, if Didi believes it can crush Uber China and thus refuses to pay a premium to buy it.

In any case the Liu family might well have a big say were an audacious merger to happen.

The intense focus on Uber and Didi has left a third company trailing in their wake: UCAR, the leasing offshoot of CAR Inc, the country’s largest car rental firm previously known as China Auto Rental.

Yet UCAR has certainly not given up the race. With a series of marketing campaigns last year under the slogan “Beat U”, UCAR has rapidly grown its market share from 10.7% in the second quarter of 2015 to 14.9% by the end of the year, according to China Daily. But it is better placed to weather potential regulatory storms since its entire fleet is leased, mostly from CAR Inc.

Perhaps more importantly, UCAR also has the backing of the most senior member of the Liu family and the “godfather of Chinese capitalists”, Liu Chuanzhi. Legend Holdings, the investment conglomerate chaired by Liu, is a major shareholder of CAR. Moreover, the Hong Kong-listed Digital China, another affiliate of Legend, is also a strategic partner of Uber in China.

So will Liu senior have a decisive say in the future of China’s car hailing market?

The Beijing News posed this question to Liu last month. “Jean Liu and Liu Zhen made their own career decisions, it’s nothing to do with me. From my own perspective I should pay more attention to CAR Inc. We all work hard for our own career. There is nothing special going on here, its purely coincidental,” Liu replied.

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