Rival ride-hailing apps challenge Didi’s dominance in China

THE current state of China’s US$30 billion ride-hailing market, the world’s largest, is reminiscent of the dotcom craze of the late 1990s, when many tech hopefuls launched startups that were unprofitable but still managed to win enormous valuations based on the number of customers or eyeballs they could pull in.

Despite losing money, many companies are driving headlong into China’s ride-hailing market, worth an estimated 249.9 billion yuan (S$48 billion) in 2020, according to the Internet Society of China. Chinese companies like AutoNavi Holdings, Meituan, Tencent Holdings and Huawei Technologies have been eating into the market share of the dominant Didi Chuxing Technology.

At the end of 2017, Didi was China’s undisputed ride-hailing leader, commanding 90 per cent of China’s market as it took in 7.43 billion orders from 450 million customers, according to the company. Didi is still China’s biggest ride-hailing platform, but its market share has since fallen to 70 per cent from March to August this year, according to a report by Haitong Securities.

In July 2021, the Cyberspace Administration of China fined Didi US$1.2 billion for violating national security and privacy laws, which presented a rare opportunity for its competitors. On Jul 4, the internet regulator announced it had ordered app stores in China to stop offering Didi’s app because it had found the company had illegally collected users’ personal data.

Days after Didi’s app was taken down, Meituan – the Hong Kong-listed company behind the eponymous food delivery app – launched a ride-hailing service, which subsequently moved into many Chinese cities. That same month, two other Chinese tech giants, Tencent and Huawei, launched their own ride-hailing apps.

Crowded streets

After Didi’s app was taken down, Alibaba Group, one of the biggest Chinese e-commerce companies, started lending money to ride-hailing platforms. For example, Xiehuachuxing, a ride-hailing company in Hangzhou – where Alibaba is headquartered – pledged some of its shares to the e-commerce giant in return for financing, Chinese corporate records show.

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On Oct 25, AutoNavi, Alibaba’s digital mapping subsidiary, launched a self-driving ride-hailing platform called Rocket Ride, which has obtained a license to operate in Beijing. One executive at a ride-hailing aggregation platform estimated that AutoNavi’s daily order volume since July 2021 has more than doubled to over 7 million.

As of mid-2022, Meituan’s ride-hailing service was taking around 1 million orders a day. By comparison, Didi was handling about 16 million orders a day during the same period, though that was down 40 per cent from its average in the second quarter of 2021.

“After Didi’s app was taken down in July 2021, Meituan’s management held many meetings to discuss how to attack the market, how to get drivers, how to give subsidies and how to advertise,” a person familiar with Meituan’s business told Caixin.

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At a meeting in August 2021, Meituan chief executive officer Wang Xing stressed the importance of self-driving ride-hailing, which he said would be able to offer a stable source of rides for customers during peak hours. Meituan’s ride-hailing business, however, has not experienced a boom in growth, according to an insider. In February 2022, it was handling about as many orders as it was in the previous June and July.

Some Chinese car makers have also jumped behind the wheel, such as SAIC Motor’s ride-hailing service Xiangdao Chuxing and Geely Automobile’s Caocao Chuxing Mobility. The former is on the road to an initial public offering (IPO), Caixin reported in mid-August.

Although ride-hailing has been around in China for more than a decade, the domestic industry doesn’t have a single profitable company to speak of. AutoNavi told Caixin that its ride-hailing aggregation platform has not yet turned a profit.

Since it was founded in 2012, Didi has run a continuous operating loss, according to a disclosure it made when it listed on the New York Stock Exchange in mid-2021. The company lost a total of 35.3 billion yuan from 2018 to 2020, and its annual loss widened to 50 billion yuan in 2021.

Despite its red ink, Didi raised US$4.4 billion in its IPO, which gave the company a US$68 billion valuation when its shares started trading on Jun 30, 2021. Twelve months later, Didi delisted under pressure from disapproving Chinese regulators that feared its listing might expose the company’s trove of personal data on Chinese users to foreign powers, particularly the United States.

Aggregation frustration

Didi would end up as the only domestic ride-hailing company to feel the heavy hand of Chinese regulators. For a long time, China’s ride-hailing market was lightly regulated, but that has started to change.

There are still gaps in the rules governing ride-hailing in China. For example, there are no laws for ride-hailing aggregators — platforms that allow users to order a car from a variety of services at the same time. This has led to a number of questions about the responsibilities of these platforms to their users, such as how liable they are for a car crash during a ride.

There are no regulations stipulating whether aggregation platforms should bear joint responsibility with the companies operating the ride-hailing cars in the event of an accident, said Gu Dasong, the head of Southeast University’s Transportation and Development Research Center.

In July, the Ministry of Transport released updated rules governing the data online taxi booking services need to submit to the government. The changes spelled out that aggregation platforms are subject to the same regulatory requirements as ride-hailing companies, which means they need to submit specific data on drivers and their vehicles to the government’s national platform either in real time or on a weekly basis.

On Aug 22, the ministry met with 11 ride-hailing companies and criticised them for their poor safety practices and operational irregularities such as hiring unlicensed drivers. The ministry told the aggregators they must ensure that the ride-hailing services on their platforms meet regulatory requirements. The ministry also laid out aggregators’ responsibilities for a car crash. In the event of a crash, the aggregation platforms must compensate the involved users first and then take up the matter with the company that provided the ride.

Before that, the aggregators were not obligated to compensate users for accidents in most circumstances, Gu said. But now that aggregation platforms are required to pay compensation, their liability for car accidents is close to that of the companies that actually provide the rides.

The question of liability is one that is still being debated.

Academics including Tao Ying, an associate law professor at Capital University of Economics and Business; Fan Liangcong, a law professor at Zhejiang University; and Tan Yuan, an associate law professor at the Chinese Academy of Social Sciences, believe that aggregators are fundamentally different from ride-hailing companies. Because the ride-hailing companies are the ones actually transporting users, they should be the ones to guarantee their safety. They argue that because aggregators are essentially intermediaries, they should not be responsible for passenger safety.

When customers order a ride on an aggregation platform, a third party provides the transportation, which is equivalent to the aggregation platform assigning an agent to handle transporting the user, said Sun Xiangqi, an associate law professor at Beijing Jiaotong University.

An industry insider said that during the Transport Ministry’s meeting with the 11 ride-hailing companies in August, the ministry pointed out that aggregation platforms get to enjoy the same rights as ride-hailing services without bearing any of their responsibilities.

“With this meeting, the ministry sent a clear message — rights and responsibilities must go hand in hand,” the industry insider said. CAIXIN GLOBAL