The Chinese are coming!

After losing more than $2 billion over the last two years, Uber has pulled out of China and has sold its Chinese business to its rival, Didi Chuxing in return for a 20% stake in a joint venture and a $1 billion investment in Uber, at its current valuation of $68 billion.

The acquisition has been confirmed and will give Didi Chuxing a de facto monopoly, raising its value to $35 billion. Uber will now have a stake valued at around $7 billion in the company. Uber made very little impact in consolidating its presence in some 60 cities, while Didi Chuxing operates in more than 400. The Uber app will continue to work in China, possibly because of the company’s interest in finding new international users arriving there with the app already on their phones, but it will work with the Didi Chuxing app.

The Chinese government legalized ride-sharing a few days ago, allowing freelance drivers to operate if they have more than three-years experience, no criminal record, a vehicle with less than 600,000 kilometers, are geo-located via GPS, and that have a license from an authorized operator to offer transport services. Didi Chuxing now owns 87% of all private vehicles willing to transport passengers, and 99% of taxis.

Selling up to its Chinese subsidiary frees Uber of burden that was a drag on its results. The company turns up a profit in several of its most important markets, meaning it should be able to go ahead with a IPO in case it wants to. At the same time, it now has a billion dollars in cash, allowing it to fight local competitors in other markets, fight litigation or develop new technologies, such as its new and ambitious initiative to improve its maps.

Travis Kalanick has already commented on the deal, which once again illustrates the impossibility of competing in such a difficult market as China for outsiders. During its almost two years there, Uber was not only obliged to lose around $2 billion a year to finance its expansion, but also came up against all kinds of maneuvers, such as Didi Chuxing investor Tencent, closing Uber’s accounts in its widely used WeChat instant messaging service.

Uber’s exit confirms what we already knew: the Chinese market has enough specifics and enough powerful players to make life impossible for foreign players. Add to this the conditions the government imposes and the outcome is that a market that is home to around a fifth of the world’s population is to all intents and purposes impermeable. This is probably how the Chinese government wants it: foreign companies continue to invest and manufacture in China, the country is open to foreign investors and is not isolated from the world, but its internal markets remain closed to overseas companies.

The modern version of autarchy is less autarchy, but it continues to offer Chinese companies a solid market base where they can be successful, and then plan their expansion into overseas markets. Alibaba, Tencent or Baidu are big international players, and we will soon find them in a growing number of industries using the experience they have accumulated in their domestic markets and with the deep pockets required to fund long-term campaigns. The Chinese are coming!


(En español, aquí)