Ride-hailing firm Didi Chuxing virtually drove America’s Uber out of China, emerging victorious in the battle for the world’s biggest ride-hailing market.
Uber’s brief time in China was bruising. In 2016, after about $2 billion in losses over two years in the country, the American firm sold its Chinese operations to Beijing-based Didi. This was likely a measure of last resort, considering Uber received more bookings there than in any other country, including the U.S. Apart from its sheer size, the market is lucrative. Last year, despite the pandemic, the gross transaction value in ride-hailing reached 221 billion yuan ($32 billion), up more than half from 2017, according to consulting firm Frost & Sullivan. The Chinese Ministry of Transport reports that in October alone, an average of 21 million rides a day were booked on ride-hailing platforms.
Uber’s departure gave local favourite Didi room to grow, and it did. Launched in 2012, it has become China’s top ride-hailing firm, processing more than four-fifths of all domestic orders. The company is reportedly preparing to raise $60 billion for a Hong Kong IPO this year. Its investors include Alibaba, Tencent and Softbank.
Various conditions related to population and transportation are highly favourable to ride-hailing services in China. Big, densely populated cities are the primary source of riders, and China has 14 metropolitan areas with populations in excess of 10 million, more than any other country. And many residents do not drive – though not necessarily by choice. Municipal governments take measures to limit private car ownership in an effort to ease congestion. One way is to restrict the supply of licence plates, which are granted in limited numbers through lotteries and auctions. The millions who come away empty-handed are prime customers for ride-hailing firms.
Yet another deterrent to owning a car in big Chinese cities is the scarcity and expense of parking. Besides, would-be drivers have other transportation options, including an extensive high-speed rail network for longer trips. For local mobility, ride-hailing neatly fits the bill, being cheap and readily available. According to the Ministry of Industry and Information Technology, more than 340 million Chinese booked a ride at least once in the first half of 2020.
There are some difficulties for the industry, however, as regulators are keen to keep tech monopolies in check. Many municipalities are imposing restrictions on who can drive for ride-hailing firms in an apparent effort to allay the concerns of local taxi industries. “Didi is hedging its bets by diversifying”, The Economist reports. This includes foreign expansion; it currently operates in 13 other markets, mostly in Latin America, and plans to launch in Europe ahead of its IPO. Didi has also added business lines, such as food delivery, with the goal of building its platform into an ecosystem.
Still, the opportunity in China remains immense – which is why most of Didi’s local competitors, most notably Shouqi Yueche, are keeping their focus fixed.
