The Ridesharing Market in China
With rising wealth and a growing middle class, China has become the world’s largest car market. The growth in the Chinese economy in the 2000’s contributed to the rapid rise of Chinese car ownership. However, with the recent slowdown in China’s economy, car sales have slowed year over year for the past five years. Furthermore, faced with severe air pollution and traffic congestion, many large Chinese cities have taken action to stem the rising number of private cars. In an effort to maintain urban mobility, ridesharing services have burst on the scene to help reduce the number of cars in Chinese cities and also meet the middle class’ increased need for personal mobility.
Ridesharing is one of the fastest growing mobility innovations worldwide and has quickly become mainstream in many Chinese cities. Over the past five years, many ridesharing companies have entered the Chinese market, taking advantage of the country’s crowded roads and 240 million vehicles. Didi Kuaidi, a Chinese-based ridesharing company, became the dominant service in 2015. Backed by both Alibaba and Tencent, two of China’s largest companies, Didi Kuaidi offers consumers taxi and private car services. With its expansion into 360 Chinese cities and its ability to process over three million car requests each day, Didi Kuaidi, has become the country’s largest provider of mobile ridesharing services. In September 2015, Didi Kuaidi, which controls 80 percent of China’s ridesharing market, announced a strategic partnership with the American ridesharing company, Lyft. In an effort to remain competitive, Didi Kuaidi hopes to make it easier for travelers in both China and the US to hail rides.
New to the Chinese market, Uber has faced an evolving and complex business climate with major challenges emerging from stiff competition. Uber has dedicated tremendous resources to aggressively expand in the world’s largest country; however, the company has faced difficulties in gaining traction. The first sign of trouble for Uber China occurred when the company’s official WeChat account was removed. WeChat boasts 500 million active users and by blocking Uber China from its services, allowed Didi Kuaidi to maintain its market share and effectively locked Uber out. Despite these barriers, Uber China has found a way to log nearly one million rides per day, capture 16% of the Chinese ridesharing market, and maintain a monthly compound growth rate of 100%. To increase its presence in China, Uber has partnered with Chinese internet company, Baidu. This partnership integrates Baidu Maps with Uber services and provides additional capital to help Uber expand into more than 100 Chinese cities. However, China is a notoriously tough market for foreign companies and Uber China’s rapid expansion has led to tremendous losses projected at over a billion dollars a year.
Currently the Chinese ridesharing industry faces an uncertain future. Increasingly, the Ministry of Transportation has become more concerned with driver accountability and has proposed new regulations. The government claims additional regulations will reduce traffic congestion and balance supply and demand. These requirements mandate that companies acquire special licenses and insurance, while drivers must commit to only one ridesharing service and exhibit a certain level of driving experience. These regulations would dictate the fees that ridesharing companies can charge and how many cars they operate at a time. Further complicating matters, company data must be stored within China and shared with the authorities. These new regulations would significantly increase the amount of power the government holds over ridesharing companies. As such, these regulations may force ridesharing services to adjust their business models and operate more like traditional taxis.
MBA Candidate 2016,Tulane University