China never banned Uber because ride-hailing is great for the government’s agenda

We come in peace.
We come in peace.
Image: Reuters/Danish Siddiqui
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The merger between Didi Chuxing and Uber’s China business marks the end of China’s ride-hailing wars. The battle has been bitter, rife with cash-burning, driver fraud, and online turf wars.

One element missing, however, was interference by the Chinese Communist Party (CCP). Aside from the occasional police raid or bureaucratic finger-wag, the central government largely stayed out the companies’ way. That’s because popularizing ride-hailing across China aligns nicely with the CCP’s agenda for the country.

Uber and Didi absorb unemployment

Perhaps one of the greatest protections for Uber and Didi against a government crackdown has been their ability to provide work for people with no skills.

A major threat to China’s social stability is rampant joblessness. As the manufacturing sector contracts, millions of Chinese will fall out of work. Authorities place the current unemployment rate at about 4%, but research firm Fathom Consulting estimates it could be as high as 12.9%. In the next two to three years, up to six million people are expected to lose their jobs as state-affiliated plants in heavy industry cut staff to manage overcapacity.

Uber and Didi can help offset some of this unemployment. Ferrying passengers around the city for cash requires almost no training and very little capital. Already, some of the casualties of China’s slowdown have begun driving for Didi. The company claims that it has over a million drivers across 30 cities who signed up after their heavy-industry employers faced “restructuring programs.”

Uber and Didi prove China “supports innovation”

Beijing has a tendency to protect state-affiliated industries, and the taxi industry is one of them. But China is also in the midst of a push to bolster private internet companies—in part to reform its economy, and in part to establish itself globally as a nation known for innovation.

Premier Li Keqiang’s “Internet Plus” policy calls for the introduction of online business models in almost every sector of the economy, including transportation. The best example of this initiative at work lies in Alipay, the Alibaba-affiliated payments app. While Alipay originated as a Paypal-esque escrow service, it’s steadily transforming into a consumer bank that offers credit scoring and small business loans. It’s a direct competitor to China’s state-owned banks, which typically don’t offer these services.

Instead of banning Alipay for directing funds away from the state, the Chinese government has let it to blossom—and now, the state-owned banks it competes with are investors. Already, there are some parallels in the ride-hailing industry. China’s sovereign wealth fund has invested in Didi. This indicates that the industry will be subject to oversight, but also protection, from the state.

In addition, by allowing ride-hailing to thrive, China can claim to be one of the world’s progressive countries when it comes to fostering internet businesses. While countries throughout Europe continue to throw legal hurdles at Uber and its ilk (paywall), China can bolster its claim that it is growing “from a big internet nation to a great one,” in the words of former internet czar Lu Wei.

The CCP never rejected Uber’s passport

The Chinese government had the opportunity to bar Uber from China, at almost any time. As part of the regulations released last week that officially legalized ride-hailing, for example, it could have said that no foreign company could operate or own a ride-hailing company in China. It’s issued similar rules in the past. Just two months ago SARFT, which regulates China’s media industry, barred foreign companies and foreign-domestic joint ventures from acting as smartphone game publishers.

But apart from an investment from China’s sovereign wealth fund into Didi, the state showed few signs of favoritism toward the home-team player. Granted, it didn’t have to. Didi was already the market leader in China. Had Uber pulled ahead, the CCP would have faced an uncomfortable possibility that a foreign company owning the bulk of the ride-hailing industry—which will likely become just as critical to daily life as telecommunications or social media, two industries the state controls closely.

As much as Uber and Didi benefit from the merger, China’s government does as well. It can rest assured knowing there’s a massive new industry for legions of laid-off workers to fall back on. It can claim to be one of the first countries to give ride-hailing a legal green-light. And though some would argue otherwise, it can even claim to be open to foreign business competition.

Getting on board was an easy call.