Why did Uber surrender to Didi Chuxing?

The ride-hailing start-up suffers its first major defeat, but cabbies may want to wait before they uncork the champagne.

by Adam Gale
Last Updated: 01 Aug 2016

Beleaguered cabbies the world over will have cause to celebrate this week, when their arch-nemesis Uber announces a shock retreat from its biggest market. The ride-hailing start-up is going to sell its business in China to local rival Didi Chuxing, according to Bloomberg sources.

It’s bitter blow to founder Travis Kalanick, who had pinned his firm’s future – and burned through a shed-load of investors’ money – on successfully competing in China, even going as far as spending a day a week there to grow the business.

Taxi drivers will enjoy more than schadenfreude, however. What this gives them is hope.

Uber’s aura of invincibility has finally been cracked. It’s suffered setbacks before – legal challenges in France, a ban in South Korea – but nothing had seemed to halt its ongoing and seemingly inevitable consumption of the world’s taxi business, until now.  

Apply the brakes

It may be a little early to uncork the champagne, however. Both the circumstances and the terms of Didi’s takeover of Uber China indicate that it’s going to make Uber stronger everywhere else.

In a leaked, unpublished blog post, Kalanick said it was a question of listening to your head as well as your heart. Another way of looking at it is listening to your hard-nosed investors rather than your ego.

Uber’s investors – and Didi’s – had unsurprisingly grown anxious over the billions being poured into the loss-making Chinese ride-hailing market. More importantly, so too had the Chinese regulators.

They recently cleared the path for ride-hailing apps to operate legally, but under the condition that they also operate sustainably: intensely subsidised growth is out.

Under those conditions, it’s virtually impossible for Uber China to beat Didi, which not only has the all-important head start, but also a war chest to rival its deep-pocketed American rival. Anyone would have thought that was what the Chinese regulators wanted all along...

Uber’s capitulation therefore has more to do with the impenetrability of China to Western firms (see Amazon, Facebook and Google) than it does to any underlying weakness in its business model.

Indeed, as Uber is now free from its huge spending commitments in China, it will presumably use those funds to ramp up expansion in the rest of the world. Uber's also getting $1bn and (with the other Uber China investors like Baidu) a 20% stake in the no doubt soon-to-be profitable Didi out of the deal, which won't hurt.

Facing a rejuvenated Uber, the black cabbies’ only real hope is that British regulators, politicians and judges are more sympathetic to their cause than China’s have been – but that remains far from guaranteed


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