NEED A LIFT

Uber might have to settle for being the Lyft of China

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China is one of Uber’s most important markets, and its tenure in the Middle Kingdom is already longer than many expected. But as time goes on, its prospects for thriving in the country are looking quite similar to that of its biggest rival in the US.

The company passed a minor milestone today, announcing its separate Chinese subsidiary Uber China has closed a series B round of venture capital funding. Promisingly, its roster of investors includes high-profile Chinese companies with long histories and ties to the state.

In addition to GAC, a state-affiliated car maker, Uber China’s backers now include the HNA Group, a major travel and logistics company (best known in China as the owner of Hainan Airlines, the country’s largest privately-owned airline); China Taiping Insurance, a Hong Kong-listed insurance company; China Life, another insurance company; and CITIC Securities, an investment bank part of the state-backed CITIC Group.

Aligning itself with state-affiliated Chinese investors is critical for Uber China. The Chinese government will regularly use foreign companies as political punching bags, and now that the government has declared “internet sovereignty” as a matter of national security, tech companies are particularly vulnerable to fines, lawsuits, and state-media smear pieces. As a result, roping in investors with close ties to the state can help convince authorities it’s willing to put the government’s interests ahead of its own.

But even roping in the right investors doesn’t mean Uber will sweep China the way it has swept its home market. Funding is the gasoline for ride-hailing startups, and Uber looks to be trailing its main Chinese competitor in that respect. Both the size of the series B round and Uber China’s post-money valuation remain undisclosed. Earlier this year, the company publicly pegged its goal for the series B round at $2.5 billion (pdf). Didi Kuaidi, its Chinese rival, closed a $3 billion funding round at a $16.5 billion valuation last September.

Neither company has revealed up-t0-date trip data, but as of August 2015, Uber China was trailing Didi significantly.

Increasingly, Uber is looking like the number two player in China, much like how Lyft is the number two player in the US. Industry observers don’t yet agree on whether ride-hailing is an industry that can accommodate more than one player. It’s clear that more Uber drivers leads to more Uber passengers and subsequently more Uber drivers, enabling the big to get bigger. But it’s also possible that runners-up can grow up to be profitable businesses, especially with the right partnerships.

As badly as Uber surely wants to squeeze out Lyft in the US, its best hope for China might be occupying the kind of role that it’s used to associating elsewhere with Lyft.

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