17 July 2019
Chinese ride-hailing giant Didi is facing closer government scrutiny as well as competition from state-backed entities. Photo: Reuters
Chinese ride-hailing giant Didi is facing closer government scrutiny as well as competition from state-backed entities. Photo: Reuters

Didi faces intensifying competition from state rivals

Chinese ride-hailing platform Didi Chuxing has encountered serious setbacks lately. Adding to the challenges, several state-linked entities are launching online ride-hailing services to compete with the top private player.

Didi has dominated China’s ride-hailing market after it was founded in 2012. It acquired Kuaidi Dache in 2015, and also took over Uber’s China business in 2016.

Didi now holds over 90 percent of the market share.

However, the company may have expanded too fast and somewhat ignored the safety of passengers as it launched a carpooling service, Hitch.

A woman Hitch customer was raped and murdered by her driver in August, following a similar case in May.

That has put Didi under fire. The company was ordered by Zhejiang government to suspend the Hitch service in the province. Afterwards, Didi voluntarily halted the service nationwide. It even completely suspended all ride-hailing services during midnight time slots between September 8 and September 15.

In the meantime, several state-owned enterprises (SOEs) have ventured into the space. In July, three Chinese automakers FAW Group, Dongfeng Automobile and Chongqing Changan Automobile set up a venture to establish a ride-sharing platform called T3 Mobile Travel Services. T3 marketed itself as a platform offering safer and more efficient services.

Guangdong Yueyun Transportation Co., a unit owned by the State-owned Assets Supervision and Administration Commission of Guangdong province, has also obtained the green light to roll out ride-hailing service.

Among other entities, state bus operator Beijing Bus Group recently launched a bus hailing service. The group owns more than 30,000 buses. Its mobile app enables passengers to pre-book a bus, and have the route tailored if needed.

It offers vehicles with 7, 17 and 23 seats respectively at the moment, with a minimum passenger number requirement of 3, 5 and 10 people respectively.

For example, a ride from downtown Beijing to Beijing International airport now costs around 33.2 yuan after a 30 percent discount on the platform, which is cheaper than hailing a traditional taxi or using Didi.

Frankly speaking, ride-hailing service does not have strong moat. There is not much technical barrier to prevent new entrants.

And SOEs do have their unique advantages in the field of public transport and operations safety.

Indeed, what is happening in the ride-hailing business could be another example of state-owned companies crowding out privately-owned firms.

This article appeared in the Hong Kong Economic Journal on Sept 27

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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