idi Chuxing, the largest ride-hailing service provider in China, is again facing severe public scrutiny after the grim murder of a 20-year-old rider by a Didi Hitch driver on August 24. It was the second rape and murder case involving a Didi driver in four months. According to domestic media, allegations of at least 50 sexual harassment and assault incidents committed by Didi drivers were exposed in recent years and at least three out of the 50 drivers involved in these scandals had been able to obtain a Didi driver permit despite having criminal records.
On August 25, Didi issued an official apology admitting the company bore “indisputable responsibilities” for the tragedy, and promised to give three times the normal standard compensation for any personal injuries caused by drivers registered with the platform. The next day Didi decided to suspend Hitch – a ride-sharing service – from August 27.
China’s Ministry of Transport published a commentary immediately after the incident, criticizing Didi for its failure to provide effective preventive measures and timely help.
Didi CEO and founder Cheng Wei and president Liu Qing issued a joint apology on August 28 pledging to not purely focus on “scale and expansion” in the company’s future business strategy, and saying it would suspend Hitch indefinitely.
“These reform measures indicate that Didi has acknowledged the importance of the issue, but whether these measures are enough to undo the damage will depend on the conclusion of an investigation by the public security and supervision department. Whether the company’s executives should take further legal responsibility for causing this incident remains unclear at this point,” said Zhou Hanhua, a researcher with the Institute of Law, Chinese Academy of Social Sciences.
There are calls from the general public for substantial punishments for Didi as well as any companies that have violated market regulations or broken the law.
In mid-August, CB Insights, a research company focused on venture capital firms, released a report mapping present-day leading global unicorns. It listed Didi Chuxing as one of the most valuable private startups, valued at US$56 billion. The race to become a ride-hailing giant has been described by Cheng Wei, Didi’s founder, as like driving a “racing car that could hardly be controlled without intentionally slamming on the brakes.”
According to open resources online, since its first round of funding in July 2012 Didi has gained 20 rounds of funding totaling more than US$20 billion. The company also expanded internationally in January, buying 99, an Uber rival in Brazil, and launching its own service in Mexico in April. With an estimated market value of over US$56 billion investment, Didi was expected to have an IPO by the end of 2018, potentially achieving a market value of US$70-80 billion.
In 2012, after Cheng Wei resigned from the B2C department of Alibaba’s financial services affiliate Alipay, he decided to found a startup in Beijing using his 800,000 yuan (US$116,000) personal savings. The company was initially backed by GSR Ventures with a US$3 million. Other ride-hailing apps were already available in China, and it was a critical time to take over the market. As Didi was looking for Series B funding, tech giant Tencent showed interest. Considering the huge potential market brought by Tencent as China’s top internet service portal, and the parent company of WeChat, Cheng Wei accepted Tencent’s US$15 million Series B investment in 2013. Within a year there were 100 million users taking 5.21 million trips a day, and Didi was soon one of China’s most successful mobile apps.
Meanwhile Alibaba had invested in Hangzhou-based Kuaidi, another ride-hailing app that dominated the market in the Yangtze River Delta area. Fierce competition between the two companies, as well as a couple of smaller competitors, began in 2013, but stepped up in January 2014 when the two launched a price war by offering subsidies to attract drivers to their platforms, and reducing the fees for users.
In January 2014, Tencent and others invested US$100 million in Series C funding in Didi after rival Kuaidi announced a US$100 million round from Alibaba and others. By the end of 2014, the pair were two of China’s early unicorn companies. In August 2014, San Francisco-based Uber launched its services in China and later accepted an investment by Baidu, China’s top search engine. This exacerbated the price war even further.
In February 2015, Tencent-backed Didi and Alibaba-backed Kuaidi declared a strategic merger by exchanging 100 percent stakes in each other. Starting from July 2015, Alibaba began to invest in the newly formed entity Didi Kuaidi. The merger handed a combined share of more than 95 percent of the Chinese market to the new company.
In mid-2015, Didi Kuaidi announced a non-profit, carpooling service Didi Hitch using Tencent’s Wechat as its payment and registration platform. The entire company rebranded as Didi Chuxing in September 2015. With a sustained cash-burning strategy fueled by capable investors, it wasn’t long before a Series G funding round raised US$4.5 billion in June 2016. Didi Chuxing finally acquired Uber China in August 2016 for US$7 billion. The condition of the acquisition was that Uber maintained a 17.7 percent stake in the company, while Baidu and other Uber China investors were given a 2.3 percent stake.
From then on, China’s three largest tech companies, Baidu, Alibaba and Tencent, were all invested in Didi Chuxing. With dozens of rounds of investment, the shareholding structure of Didi became extremely complex with follow-up investments from both domestic companies like China Life and Ping An Insurance, as well as international capital such as the joint investment of Japan’s SoftBank Capital and UAE’s Mubadala Ventures of up to US$4 billion.
According to research from consultancy Analysys in mid-2016, Didi grabbed about 70 percent of active users in China’s chauffeur market, and Uber China accounted for 17 percent. After the acquisition, Didi started to occupy more than 87 percent of the ride-hailing market, and almost 100 percent of the domestic chauffeur market.
According to China’s Anti-Monopoly Law, an operator that has over 50 percent of the market dominates the market. Didi released statistics indicating users on the Didi platform reached more than 10 billion services. For its Didi Hitch services, the company has provided more than one billion services in the past three years.
Back in February 2015, Yidong Yongche, a minor competitor to Didi, complained about Didi’s monopoly to the Chinese government. But there was no final judgment or result from the government. The Ministry of Commerce said publicly one month after receiving the complaint that Didi had not reported to it before acquiring Uber China, and that the ministry was investigating Didi in accordance with the Anti-Monopoly Law.
The most recent occasion that the Ministry of Commerce commented on Didi’s monopoly case was July 2017, when spokesperson Gao Feng responded to media during a press conference that the ministry was still in the investigation process and “had scheduled a few meetings with Didi Chuxing on the issue.”
According to Professor Liu Junhai from the Renmin University of China’s Institute of Commercial Law, there is no clear timeline for the investigation of an anti-monopoly case in China. “I personally think the result of the anti-monopoly investigation should be released so the public can know in a timely manner.”
Fang Zhengyu, a lawyer from Shanghai-based Niumai Law Firm told NewsChina that cases addressing anti-monopoly in the internet industry were complicated by the difficult question of how to define “monopoly.” Should the online ride-hailing industry be categorized as a separate independent market, or into the public transportation service market? From a completely independent market point of view, Didi has an unassailable market share, but from a general transportation standpoint, it has the lowest proportion of the overall market.
Dong Yizhi from Shanghai-based Yida Law Firm said after it defeated its major competitors, and without proper regulation, Didi unavoidably came to dominate the market. Despite its flagging service, users have no other option, Dong said.
The recent news triggered public calls for more attention to the safety of online ride-hailing services. To register at Didi, a driver needs to provide personal information including their name, ID number, mobile phone number, plate number and car brand. However, the vetting process for Didi drivers is not sufficient to secure passengers’ safety when getting into a registered driver’s car. One taxi driver in Beijing told our reporter in early September that some drivers use one car to register with two different license plate numbers, so they can get more orders. Some drivers just use a completely different vehicle that is not registered to pick up the passenger. ��
On September 5, an inspection team of more than 10 government departments including the Ministry of Transport, Central Political and Legal Affairs Commission and the Office of the Central Cyberspace Affairs Commission, arrived at Didi headquarters in Beijing for an in-depth investigation. According to the inspection team, this “new mode of industry has provided the general public with convenience, while at the same time, there are problems including unregulated evaluation of drivers’ credentials, authenticity of the information, and infringement upon consumer and drivers’ rights,” and “a follow-up systematic inspection and reform will be conducted across the country into online raid-hailing service providers.”
Dong Yizhi said that for Didi, whether during the initial money burning competition period, or the present period retaining industry monopoly, regulation is the most effective way to prevent illegal or rule-breaking activities. Without supervision or restrictions, companies in this gray area may find ways to escape their legal responsibilities and may not care about real effective reform and restructuring measures. Didi is, after all, a capital-driven company, Dong said.