China Roundup: Taxi App Didi Dache Gets a $700 million Warchest
This week, Chinese taxi app Didi Dache secured funding of more than $700 million, easily the biggest private investment in China’s mobile internet sector; LeTV announced an audacious plan to get into Tesla’s territory; and China’s import and export numbers slowed.
Big money for big ambitions
Santa has paid Didi Dache a visit already even though Christmas is still some time away. On Tuesday, the Chinese taxi-hailing app company announced that it had closed a new funding round of more than $700 million, the biggest private investment in China’s mobile internet sector ever. In fact, rumors about the funding had emerged as early as in April, when few believed it since the amount is larger than many Chinese tech companies’ IPOs.
Didi, one of the two dominant players that account for almost 100% of the taxi app market in China, has never had a cash problem. Prior to this week, the company had already gotten more than $100 million from investors like Tencent and Citic PE. Tencent pitched in an undisclosed amount again during this round, which was led by Singapore sovereign wealth fund Temasek; Russian investment company DST Global also grabbed a share.
Valuation of the company is still a mystery, but what’s clear is that Didi hasn’t been able to make any money yet. Didi Dache and its main competitor, a similar app called Kuaidi Dache, have locked horns in a fierce battle of winning over users since last year; each claims to have a bigger market share today. And the major tactic they both used is subsidies for users and taxi drivers, which the companies claim, cost them about $300 million combined.
Kuaidi was able to survive the cash burn because it’s not fighting alone—China’s e-commerce giant Alibaba is one of the major backers of Kuaidi and has reportedly poured more than $100 million into the company. Users of Kuaidi can pay their taxi fares using Alibaba’s Alipay Wallet app, while Didi is integrated into Tencent’s WeChat and only accepts its TenPay for mobile payments. So the rivalry between Didi and Kuaidi is oftentimes a reflection of the arm-wrestling between Alibaba and Tencent, which by the way turned ugly a couple of weeks ago.
But sooner or later the companies will need their own cash flow, and as subsidies have won them hundreds of millions of users (who are staying for now at least), it’s time for Didi and Kuaidi to think seriously about revenues. And the most convenient choice now is the passenger chauffeur business, which both kicked off during the summer. Instead of using the app to hail a taxi, users can pay a premium for a more luxurious riding experience.
However, there is a roadblock too: such services usually touch a very raw nerve—that of transportation regulators—as chauffeurs, like taxis, need licenses to operate. And that regulatory hurdle has proven to be global—Uber, headquartered in San Francisco has expanded across the borders, but is now facing lawsuits and suspensions in multiple countries.
To avoid legal disputes, Didi and Kuaidi are partnering with licensed car rental and staffing companies in China—they do not own any cars or hire drivers directly; instead, they’re just a matchmaker between passengers and existing rental services and drivers. The mechanism is flexible as well—if you’re not already an employee of any of these companies, you can still become a Didi or Kuaidi driver by signing up with them. A dozen other companies that provide similar services in China, including Uber, are also using this model to minimize legal risks.
So far most local governments have been lax about companies like Didi and Kuaidi. Except for very occasional setbacks (such as in Suzhou and Shenyang where taxi drivers are banned from using the apps), they claim to have entered more than 300 cities across China; their combined users exceed 150 million, according to third party research firm Eguan.
But Didi’s ambitions aren’t limited to the taxi and chauffeur business. The company’s CEO Cheng Wei told the media that Didi plans to expand into last-mile logistics, mobile retail as well as smart bus systems. Cheng even wants to cater the Chinese officials, whose transportation budget has been cut significantly under Chinese President Xi Jinping’s anti-graft campaigns and austerity measures. But before all that, the tough question in front of all taxi app CEOs is probably this: will users’ love for the apps last once subsidies run out?
Low inflation, high stock prices
Two sets of numbers on the Chinese economy are in focus this week: trade and inflation.
According to official statistics, imports and exports both slowed sharply in November; exports only rose 4.7% from last year and imports fell 6.7%. In comparison, exports in October grew 11.6% annually and imports increased by 4.6%. The asymmetrical pullback of exports and imports signals that domestic demand is a more challenging problem of the Chinese economy. And the inflation figure reaffirmed that: consumer price index (CPI) only rose 1.4% year on year last month, the slowest pace since 2009; in October CPI went up by 1.6%.
The market expects that China’s central bank will roll out more easing measures in the coming months. The sentiment has helped push the Shanghai Composite Index to a three-year high on Monday, surpassing the 3,000-mark for the first time since early 2011. But the number only sustained above 3,000 for one day, followed by a 5.4% sharp reverse the next day. The Shanghai market fell 0.49% today, slightly below 3,000.
Short-term turbulence does not mean that the bull is made of paper, but for inexperienced and impatient retail investors, the market is not risk-free going forward. High-margin trading, where investors use leverage to buy stocks, is rising fast. The ratio of such trading in the total trading volume has doubled since the beginning of the year, and investors have borrowed a record of $148.69 billion as of Tuesday, according to the Wall Street Journal.
Before it’s too late to rein it in, China’s securities regulators approved 12 new IPOs earlier today, which analysts say would help cool the market, as new IPOs usually dilute share prices. The index’s retreat can be a wake-up call for retail investors, especially those who jump in to speculate just because the market was hot.
Better than Tesla?
Few automakers would say that their electric cars are better than Tesla’s, even the uber-confident BYD would say that they can learn from the design of the Model S. But Chinese media company LeTV, which hasn’t made anything even remotely close to what looks like a car, has announced that they will create something better than Tesla.
On Tuesday, the video streaming portal/TV manufacturer kicked off a new project called Super Electric Ecosystem (SEE), which will create “avant-grade” electric cars controlled by the “LeOS” system. The company didn’t set a clear date to release the car, but said that the next five years would be a “strategic brand-building” period.
LeTV is an active player in China’s online entertainment business; it has participated in the production of Hollywood movies including The Expendables 3 and Automata. The company’s founder and CEO Jia Yue-ting is a mysterious man—rumors say his connections run deep. He is apparently close to Communist Party officials at the provincial level, a claim he has refuted saying only one of the company’s early investors has a party background and he would rather have excluded the investor if he had known about it earlier.
With powerful background or not, the SEE project announcement is a bold move and the industry may really have been “stunned” by its very upbeat press release. Let’s hope that a few years from now, Elon Musk won’t be laughing about “LeEV”.
You may also like
The ambiguity of China’s carbon reduction goals has resulted in short-term emissions increases, and the targets may not be realistic.
| Mar. 7 2023
Baijiu has been an integral part of Chinese culture for centuries, but manufacturers need to attract a new generation to the drink.
| Mar. 7 2023
Jobs, Jobs and … Less Jobs?
China is in a unique position where it has both a labor shortage and not enough jobs at the same time.
| Mar. 7 2023
A Global View on China’s Tech Innovations
China has become highly innovative in recent decades and is set to become even more so due to geopolitical changes.
| Feb. 28 2023