The
raid on Uber offices in China does not herald a clampdown on
e-commerce in China, rather demonstrates the importance of knowledge
of China’s internal stability concerns. Meanwhile foreign firms
continue to profit, and Chinese firms seek new opportunities.
On
May 1st
the offices of ride sharing app Uber in Guangzhou were raided
by Chinese authorities. Officials seized equipment, with Uber’s
office in Shenzhen also being visited for “routine inspections.”
While this is not Uber’s first international set-back, as the company
has faced serious opposition and bans from various nations, some
worry that this event signals a digital clampdown by Beijing.
May 1st
the offices of ride sharing app Uber in Guangzhou were raided
by Chinese authorities. Officials seized equipment, with Uber’s
office in Shenzhen also being visited for “routine inspections.”
While this is not Uber’s first international set-back, as the company
has faced serious opposition and bans from various nations, some
worry that this event signals a digital clampdown by Beijing.
Initially,
these fears seem justified, following the government’s decision to
accuse Uber of operating without a license. Specifically, the
Guangzhou Transport Commission described
Uber as an“illegal
[business] that disrupt[s] the market and we will not be soft on
these activities in the future [sic]”
The furor in China surrounds the use of privately-owned vehicles as
taxi service providers. In China utilizing private vehicles to such
ends is (since January 2015) illegal, with taxi operators having to
first acquire a license permitting them to rent vehicles from vetted
rental agencies.
these fears seem justified, following the government’s decision to
accuse Uber of operating without a license. Specifically, the
Guangzhou Transport Commission described
Uber as an“illegal
[business] that disrupt[s] the market and we will not be soft on
these activities in the future [sic]”
The furor in China surrounds the use of privately-owned vehicles as
taxi service providers. In China utilizing private vehicles to such
ends is (since January 2015) illegal, with taxi operators having to
first acquire a license permitting them to rent vehicles from vetted
rental agencies.
Uber
Upsets the Balance, Pays the Price
Upsets the Balance, Pays the Price
It
is important to note that this rule is not merely a vestige of a
planned economy, but rather one of China’s many sector specific
regulations which primarily seek to maintain societal stability. As
demand for taxi services has rapidly increased in China, demand has
far outstretched supply. This is because in most cases, the
government has not
issued any new taxi licenses
since the early 1990s.
is important to note that this rule is not merely a vestige of a
planned economy, but rather one of China’s many sector specific
regulations which primarily seek to maintain societal stability. As
demand for taxi services has rapidly increased in China, demand has
far outstretched supply. This is because in most cases, the
government has not
issued any new taxi licenses
since the early 1990s.
| A Popular Convenience: Taxi Stand in China |
While
initially adequate, this relatively low number of licenses has caused
prices
to skyrocket, with
a license in Shanghai fetching as much as ¥500,000
($80,745). Moreover, car rental prices have also jumped as taxi firms
drive up demand by seeking to maximize their fleet numbers to offset
the lisence price. This has led to rental fee prices in places such
as Nanjing rises to as much as ¥9000
($1450) per month. (8)
initially adequate, this relatively low number of licenses has caused
prices
to skyrocket, with
a license in Shanghai fetching as much as ¥500,000
($80,745). Moreover, car rental prices have also jumped as taxi firms
drive up demand by seeking to maximize their fleet numbers to offset
the lisence price. This has led to rental fee prices in places such
as Nanjing rises to as much as ¥9000
($1450) per month. (8)
Recently
taxi
drivers have gone on strike
in various Chinese cities to protest for a reduction in rental fees.
It is precisely here where Uber undercuts the established system by
utilizing privately-owned vehicles. Consequently, in order to prevent
unrest and economic losses, the Chinese government has gone after
Uber, arguing it does more harm than good. Moreover, since Uber is a
foreign firm, this lessens any fallout for the government, as it does
not have to anger Chinese service providers.
taxi
drivers have gone on strike
in various Chinese cities to protest for a reduction in rental fees.
It is precisely here where Uber undercuts the established system by
utilizing privately-owned vehicles. Consequently, in order to prevent
unrest and economic losses, the Chinese government has gone after
Uber, arguing it does more harm than good. Moreover, since Uber is a
foreign firm, this lessens any fallout for the government, as it does
not have to anger Chinese service providers.
China
in Localization Push
in Localization Push
Uber
paradigm shifting businesses practices makes in an ideal (and not
wholly unjustifiable) candidate to blame. This scapegoatism becomes
more evident when one discovers that despite Uber’s $40 billion
valuation, it remains a marginal player in the taxi market in China.
Currently Kuaidi Dache (Speedy Taxi) and Didi Dache (Honk Honk Taxi)
control over
90% of the market.
Prior to their $6 billion merger in February, these two firms were
backed by top-tier Chinese internet giants. The former was partnered
with Alibaba, benefitting from access to hundreds of millions of
customers via Alibaba’s social platforms; Honk Honk Taxi was backed
by Tencent, another internet giant.
paradigm shifting businesses practices makes in an ideal (and not
wholly unjustifiable) candidate to blame. This scapegoatism becomes
more evident when one discovers that despite Uber’s $40 billion
valuation, it remains a marginal player in the taxi market in China.
Currently Kuaidi Dache (Speedy Taxi) and Didi Dache (Honk Honk Taxi)
control over
90% of the market.
Prior to their $6 billion merger in February, these two firms were
backed by top-tier Chinese internet giants. The former was partnered
with Alibaba, benefitting from access to hundreds of millions of
customers via Alibaba’s social platforms; Honk Honk Taxi was backed
by Tencent, another internet giant.
Following
suit, Uber which debuted in China in February 2014, decided to
partner
with Baidu
in December of the same year, thus gaining access to the leading
Chinese search engine’s mapping and mobile technology. Partnering
with Baidu was an effort to integrate Chinese know-how into Uber’s
operations; however, following recent events, Uber will have to go
further to accommodate Chinese regulations by ensuring vehicles are
sourced from rental agencies.
suit, Uber which debuted in China in February 2014, decided to
partner
with Baidu
in December of the same year, thus gaining access to the leading
Chinese search engine’s mapping and mobile technology. Partnering
with Baidu was an effort to integrate Chinese know-how into Uber’s
operations; however, following recent events, Uber will have to go
further to accommodate Chinese regulations by ensuring vehicles are
sourced from rental agencies.
Interestingly,
the Guangzhou government agreed
that traditional taxis we no longer sufficient
to meet demand; with the regional government even announcing that it
is considering launching a government run e-booking taxi service.
This can be seen as part of wider Chinese efforts in recent months to
promote or require domestic product / service use in important
projects.
the Guangzhou government agreed
that traditional taxis we no longer sufficient
to meet demand; with the regional government even announcing that it
is considering launching a government run e-booking taxi service.
This can be seen as part of wider Chinese efforts in recent months to
promote or require domestic product / service use in important
projects.
| Huawei CEO Eric Xu |
In
particular, the Central government has pushed for localization over
fears of foreign cyberspying, highlighting concerns about national
information security. In a rare instance of a top CEO breaking rank
with government policy; Eric Xu, CEO of Huawei, recently
advocated in favour
of maintaining open access in the market. Xu candidly admitted that
even though Huawei could gain more contracts if constraints were
placed on foreign firms, he would still oppose such constraints. Xu
maintains that China’s information security can only be guaranteed by
attracting the best tech, whether foreign or domestic, to the
country.
particular, the Central government has pushed for localization over
fears of foreign cyberspying, highlighting concerns about national
information security. In a rare instance of a top CEO breaking rank
with government policy; Eric Xu, CEO of Huawei, recently
advocated in favour
of maintaining open access in the market. Xu candidly admitted that
even though Huawei could gain more contracts if constraints were
placed on foreign firms, he would still oppose such constraints. Xu
maintains that China’s information security can only be guaranteed by
attracting the best tech, whether foreign or domestic, to the
country.
Xu
went on to state that Chinese products could fill the gaps if foreign
firms were restricted from various contracts, but that the overall
quality would suffer.
went on to state that Chinese products could fill the gaps if foreign
firms were restricted from various contracts, but that the overall
quality would suffer.
China’s
E-Commerce Biosphere Remains Friendly
E-Commerce Biosphere Remains Friendly
While
China may seek to increase domestic content in important projects,
Beijing is hardly alone in doing so. All nations seek to promote
their local industries, with even adamant free-trade advocates such
as the U.S. often preferring to utilize domestic firms over
comparable foreign ones. In any case, the Chinese government is not
going to undertake measures which drastically shake investor
confidence, nor risk capital flight on rumors of punitive
localization campaigns.
China may seek to increase domestic content in important projects,
Beijing is hardly alone in doing so. All nations seek to promote
their local industries, with even adamant free-trade advocates such
as the U.S. often preferring to utilize domestic firms over
comparable foreign ones. In any case, the Chinese government is not
going to undertake measures which drastically shake investor
confidence, nor risk capital flight on rumors of punitive
localization campaigns.
Fears
over an impending clampdown on the e-commerce and mobile markets in
China are unfounded. Indeed, Uber’s plight appears an outlier, the
result of having brushed up against the stability apparatus that
underpins much of China’s economic policies. Foreign firms continue
to report stellar growth in China, with TripAdvisor announcing that
China is set to become its largest market: Chinese tourists spent
$500 billion in 2014. TripAdvisor launched
Daodao.com, its Chinese site in 2009,
and had capitalized on high mobile usage among Chinese travelers.
Surveys by the company indicated stronger than expected willingness
by Chinese customers to plan trips via mobile.
over an impending clampdown on the e-commerce and mobile markets in
China are unfounded. Indeed, Uber’s plight appears an outlier, the
result of having brushed up against the stability apparatus that
underpins much of China’s economic policies. Foreign firms continue
to report stellar growth in China, with TripAdvisor announcing that
China is set to become its largest market: Chinese tourists spent
$500 billion in 2014. TripAdvisor launched
Daodao.com, its Chinese site in 2009,
and had capitalized on high mobile usage among Chinese travelers.
Surveys by the company indicated stronger than expected willingness
by Chinese customers to plan trips via mobile.
Similarly,
China
surpassed Europe
in Q12015 to become Apple’s second largest market, with the company
posting $16.8 billion in profits. According to David Garrity of GVA
Research, “we are seeing a move away from large, form factor phones
[running on] Android operating systems to Apple.”
China
surpassed Europe
in Q12015 to become Apple’s second largest market, with the company
posting $16.8 billion in profits. According to David Garrity of GVA
Research, “we are seeing a move away from large, form factor phones
[running on] Android operating systems to Apple.”
While
there is not yet a Chinese equivalent of Apple, mainland firms are
taking heed of Xu’s words. Instead of pushing for government
legislation to promote high-end Chinese alternatives to Apple et al,
Chinese companies are seeking new opportunities.
there is not yet a Chinese equivalent of Apple, mainland firms are
taking heed of Xu’s words. Instead of pushing for government
legislation to promote high-end Chinese alternatives to Apple et al,
Chinese companies are seeking new opportunities.
China’s
key to continued growth is the creation of new markets. This is the
mentality of Alibaba, China’s e-commerce giant. Alibaba has recently
partnered with state-backed China Telecom to sell budget
smart-phones
in China’s smaller cities and rural areas. The partnership gives
Alibaba access to China Telecom’s 186 million customers. Alibaba is
also promoting its own OS with these devices, in a bid to steal share
from current market leader, Android.
key to continued growth is the creation of new markets. This is the
mentality of Alibaba, China’s e-commerce giant. Alibaba has recently
partnered with state-backed China Telecom to sell budget
smart-phones
in China’s smaller cities and rural areas. The partnership gives
Alibaba access to China Telecom’s 186 million customers. Alibaba is
also promoting its own OS with these devices, in a bid to steal share
from current market leader, Android.
Ranging
in price from ¥299 to ¥699 ($85-113), the devices come with four
months of free 2G service. Alibaba has also pre-installed it’s Taobao
consumer marketplace app; a program which has coined the term “Taobao
villages”
– highlighting the vital role the service plays in many local
economies. The phones will be available via T-mall, another
e-commerce site run by Alibaba as it seeks to increase its share of
China’s e-commerce market, set to expand to $76 billion by 2016.
in price from ¥299 to ¥699 ($85-113), the devices come with four
months of free 2G service. Alibaba has also pre-installed it’s Taobao
consumer marketplace app; a program which has coined the term “Taobao
villages”
– highlighting the vital role the service plays in many local
economies. The phones will be available via T-mall, another
e-commerce site run by Alibaba as it seeks to increase its share of
China’s e-commerce market, set to expand to $76 billion by 2016.
Originally written for Global Risk Insights