MULTINATIONALS: Uber Hits China Speed Bumps In Guangzhou, Chengdu
Bottom line: Recent raids on Uber’s offices in 2 major Chinese cities reflect resistance it is meeting from traditional taxi operators, which could significantly limit its growth potential in the politically sensitive market.
The turmoil in China’s overheated market for paid car services has cruised into the offices of global fast-riser Uber, which has been raided twice in the last 2 weeks over its aggressive move into the market. The first raid came last week, when local officials visited the company’s offices in the southern metropolis of Guangzhou, sometimes also called Canton. (Chinese article) Now the raids have extended to the interior city of Chengdu, where Uber’s offices have again been visited by local officials conducting an unspecified investigation. (English article)
Some of the reports point out that Uber is not the only private car service being probed, and that another industry leader being formed by a merger of the nation’s 2 biggest homegrown taxi apps is also coming under scrutiny. But Uber’s high profile, combined with its own brash style and foreign roots, seem to be drawing special attention from Chinese authorities trying to bring order to the unruly sector for paid car services.
The picture in China is quite different from more mature western markets, and thus it’s not at all clear that Uber will be able to survive and thrive in the market. Most significantly, taxis are far more common in China, where they are much cheaper than western counterparts and form a major part of local public transport networks. That means that local taxi companies are usually quite large, employing thousands of people and paying big sums in local taxes. As a result these fleet operators often wield strong influence due to their big contributions to local economies.
The injection of a brash company like Uber into that equation was destined to create trouble in the traditional cozy relationship between Chinese city officials and their taxi fleets. Uber’s business model of using private cars to shuttle people around cities was questioned almost as soon as the company entered China starting with a pilot program in 2013. Now the growing chorus of concerns has finally erupted into the probes by local government officials.
The first of those came last week, when media reported that officials in Guangzhou had been conducting their investigation at Uber’s local office over 4 days. During that time the company halted its local service, which typically allows customers to order cars to take them from one place to another for prices that are lower than comparable taxi fares. This week Uber’s Chengdu office was also “visited” by local officials conducting an investigation, according to another media report. In that instance there was no service disruption, a city official said.
None of the latest reports comment on the nature of the investigations, but previous stories have indicated the central issue is the legality of using private drivers to perform the role of traditional taxis. In this particular case I have to commend local city officials, who seem to be trying to maintain a relatively neutral stance in this growing war between the traditional taxi companies and upstarts like Uber. It would have been quite easy for the officials to simply shut down Uber and homegrown upstarts like Didi and Kuadi, which recently announced their merger to form China’s largest taxi app operator.
This unusual attempt at neutrality may owe to a number of reasons, including the fact that these newer car services are more efficient and are providing some much needed competition for the older monopoly held by traditional taxis. But these 2 new raids show that officials won’t just completely let the players like Uber ride roughshod through their local paid car services markets.
At this point it’s still too early to say how this growing battle between the Ubers and traditional taxi companies will play out. I suspect that China’s larger, more western-style cities like Shanghai will realize the competition is good, and take a more open approach that finds ways for both types of companies to co-exist. But the road could be bumpier in more provincial cities like Chengdu, which could seriously crimp the China growth prospects for Uber and other private car service operators over the short- to medium term.
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