Uber Is Selling Its Chinese Business To Its Rival Didi

After much denying by both sides, Uber and Didi Chuxing nhave finally decided to merge or better put Didi will acquire UberChina. Bloomberg reports that “Didi will buy Uber’s brand, business and data in the country, the Chinese company said in a statement. Uber Technologies will receive 5.89 percent of the combined company with preferred equity interest equal to 17.7 percent of the economic benefits. Uber China’s other shareholders, including search giant Baidu Inc., will get 2.3 percent of the economic interest in Didi Chuxing. Didi founder Cheng Wei and Uber Chief Executive Officer Travis Kalanick will join each other’s boards.”

In a Facebook post this morning, Uber CEO Travis Kalanick said “It was a big, bold idea, especially given that Uber was still a relatively small start-up and no one in China had ever even heard of us. And of course, anytime we got into a discussion about our efforts in China, most people thought we were naive, crazy – or both. We saw things differently of course. China is an inspiring country with astonishing opportunity. Many of the world’s mega cities are Chinese, and their thirst for transportation innovation is second to none. Uber’s mission to make “transportation as reliable as running water, everywhere for everyone” resonates especially strongly in China.”

With this deal, Didi is now worth about $35b but according to the Bloomberg report, this deal complicated matters even for Didi because of its alliance with rival services especially in the Asian markets to take on Uber. Even Uber’s US rival Lyft is part of that alliance and so with this deal, the potentials of that alliance is greatly in question. The more important question however is where Uber goes from here in China.

Was this inevitable?

Didi controlled far more cities in China than Uber. In our article on this, “Didi virtually owns China’s taxi-hailing market with a 99 percent market share, according to its own numbers, and an 87 percent market share when it comes to hailing private cars. It operates in over 400 cities across the country versus UberChina’s 45 cities” according to CNBC and this meant Uber would have had to invest much more to compete with their Chinese local rivals. Uber was said to be spending a billion dollars to achieve this and has reportedly lost about $2b so far. And as the Uber CEO put it, “as an entrepreneur, I’ve learned that being successful is about listening to your head as much as following your heart. Sustainably serving China’s cities, and the riders and drivers who live in them, is only possible with profitability.”

It was beginning to look much like a tall order for Uber to either be at par with Didi or overtake it in China and Apple didn’t help the Uber case by investing a billion dollars in Didi this past May. Maybe that’s the point at which they determined to let it go.

China which has a 600 million strong tech market has been a difficult terrain for western companies especially in technology. Apple was able to sell its services there but a slowdown in the demand for its products there too means less sale of the iPhone there as well. Sometimes the US thinks China deliberately makes it difficult for some of their companies to operate in the biggest market in the world. America on the other hand has raised the standard for Chinese companies to operate there as well which has made it difficult for firms like the Chinese Huawei to operate in the US. So it’s a bit of protectionism on both sides of the aisle if you look at it closely or better put, an economic showoff between the two biggest economies in the world.

In an article last month, I highlighted the impact of local rivals especially in Africa on Uber’s business and I didn’t have the slightest idea that this was going to be announced today. So this goes to tell us that local rivals are beginning to eat into Uber’s dominance as seen in the alliance between Didi, Lyft, India’s Ola and Southeast Asia’s Grab. The same can be said of Kenya’s Littlecabs and Nigeria’s Oga taxis which both aim to cut into Uner’s growth on the continent.

Jean Liu who is the President of CEO of Didi Chuxing. She worked previously as a Managing Director at Goldman Sachs Asia for 12 years.  She is also the daughter of Chinese businessman and Lenovo founder Liu Chuanzhi,