The Chinese Uber Rival DiDi Buying UberChina

Uber Technologies Inc.’s decision to sell its Chinese operations to its biggest local rival shines a spotlight on a $36-billion Chinese startup that counts Apple Inc. as an investor but is little known outside China.

The deal, announced Monday, cements Didi Chuxing Technology Co.’s position as China’s homegrown ride-sharing champion while highlighting its ability to bring together investors whose interests frequently conflict.

With a name that loosely translates as “Beep Beep Travel,” it is already the biggest player in China’s car-hailing market with nearly 300 million users in the more than 400 Chinese cities where it operates, it says.

While the Chinese company will acquire Uber’s China operations, San Francisco-based Uber will become a shareholder of Didi, whose investors also include Chinese internet rivals Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

For China’s fast-growing population of urban residents, Didi has become one of the main commuting options. “Didi makes life more comfortable. You don’t need to sit in a crowded bus or subway,” said Zhang Jimin, a 22-year-old university student in Shenzhen who takes Didi rides three to four times a week. Didi’s discounts make the app as inexpensive as subways and buses, she said.

Created last year by a merger between two rival Chinese services, the company dominates China’s taxi-hailing segment and has a larger share than Uber’s China unit in the country’s private-car-sharing sector. But while Didi offers private-car services similar to Uber’s, it also differs from the U.S. rival in many ways.

Didi, for example, offers ride-hailing services using not only private cars but other vehicles such as taxis and buses, giving users alternatives when private cars aren’t immediately available. Its sprawling operations include a service that lets users test-drive cars they are interested in buying.

Didi’s partnership with Tencent, China’s largest social-network company, has also helped it attract more users. WeChat, Tencent’s smartphone messaging app that has 762 million active users, comes with a ride-hailing button that directs its users to Didi’s services. Tencent last year blocked Uber from WeChat’s marketing platform, making it harder for the U.S. firm to compete against Didi.

With the latest acquisition, Didi becomes the only company backed by all three of China’s largest internet groups—Alibaba, Tencent and search provider Baidu Inc., an UberChina investor which will become a Didi shareholder in the deal. It is rare for the three giants, which normally compete fiercely against each other, to invest in the same company.

“Didi has been able to figure out ways to work with strategic investors who sometimes have conflicting interests among themselves,” said Jixun Foo, a managing partner at GGV Capital, an investor in Didi. This skill will likely be tested again, as the deal also complicates Didi’s existing alliances with other ride-hailing companies in other parts of the world that compete with Uber. Didi, for example, is an investor in Lyft Inc., Uber’s U.S. rival, and Singapore-based Grab Taxi Holdings Pte.

Didi became China’s ride-hailing leader by first dominating the country’s taxi-hailing market. Didi Chuxing’s predecessor, Didi Dache, was founded in 2012 by Chief Executive Cheng Wei, a former Alibaba manager. Didi Dache and rival Kuaidi Dache quickly became two major players in China by offering heavy discounts, subsidies and even free beer giveaways to attract taxi drivers and passengers.

Didi Dache’s expansion accelerated after Jean Liu, a former Goldman Sachs Group Inc. executive, joined the company as its president in 2014. Ms. Liu—the daughter of Liu Chuanzhi, founder of personal-computer maker Lenovo Group Ltd. —helped Didi Dache merge with Kuaidi Dache last year and later led negotiations for the combined company’s major fundraising rounds.

The company has also navigated the regulatory environment better than other competitors and built a good relationship with the government, a critical factor in China, Mr. Foo added. “The transportation business is still a very local business. It requires a strong local team,” he said.

With the acquisition of UberChina, Didi becomes by far the biggest player in China’s ride-hailing market, making it harder for remaining small rivals to survive.

For Chinese consumers, having one dominant player operating both Didi and Uber apps wouldn’t necessarily be positive.

Ms. Zhang, the Didi user in Shenzhen who sometimes also uses Uber, said she is worried that she may no longer get good prices in the future after Didi’s acquisition. “This is bad news for consumers,” she said.


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