Pando

Shocker: Uber is having regulatory trouble in China

This is only the beginning

By Sarah Lacy , written on October 13, 2015

From The Travis Shrugged Desk

We’ll share the full results of Pando’s recent reader survey soon, but in the meantime, there’s one thing readers told us loud and clear:

  • You love that Pando picks important fights and refuses to let go.
  • You hate how damn smug we are when we’re right.

If you’re one of the readers who answered the latter then you’re probably going to want to stop reading right about...

...now.

Ok, now that those guys are gone, a serious question: At what point will even the most ardent Uber apologists be forced to admit that our reporting on the company -- all twelve billion articles of it -- has been 100% correct?

Back in 2012, Paul Carr was one of the first writers to ever write a cautionary word about them, warning that beneath Uber’s Robin Hood-style of PR was a libertarian, market-obsessed company that cared more about its own bottom line and would embrace government as soon as government started to benefit it. Fast forward to a point when it hired more lobbyists than the entire gaming industry to purchase a favorable law in Nevada. #disruption.

Then in 2014, Carmel DeAmicis first wrote about Uber’s failed, or non-existent, background check policy. After an alleged assault, Pando dug up an arrest record on the driver in question while Uber was busy victim-shaming the accuser and insisting the driver had no criminal record at all. There’s been a flood of local newspaper investigations showing nearly the same thing ever since, and everywhere uber has gone.

Also in 2014, I finally uninstalled the app, flagging what I worried was a deep culture of misogyny that ran through the company. The company responded by plotting to “go after” my family. Its disturbing practices and attitudes towards women became so generally accepted that UN Women had to sever a relationship with the toxic brand.

In the past few months, we’ve been digging into Uber’s business in China – which the rest of the tech press would have you believe is going incredibly well, and Uber CEO Travis Kalanick would have you believe is poised to be Uber’s largest business by year-end. Considering this company is valued north of $50 billion, that’s no small boast.

We’ve detailed – at smug length – the many issues with Uber in China. Rampant fraud, stiff competition from a local player with 80% market share, no local management, challenges raising money for its China subsidiary, and -- most of all-- a snowball’s chance in hell of not being shut down by the government.

And now guess what? The Chinese government is starting to crack down on the space. Now who could have predicted such a thing?

Yesterday, news swept through a shocked tech press that draft Chinese legislation threatens to make life a lot worse for both Didi Kuadi and Uber, forcing them to act like traditional taxi dispatchers and significantly changing how they operate. A gigantic “duh” emanated from everyone in the world who didn’t think China would be quite the pushover Uber seemed to suggest all summer.

Now, as some have pointed out, this hurts Didi Kuadi as much as it hurts Uber. Sort of... If enacted, it certainly hurts Didi. But it’s not fatal. Beyond a homefield advantage, Didi has close ties with the Chinese government. One of its backers is the Beijing Automotive Group, and it already boasted a partnership with Shanghai to better automate its cabs. Earlier this month, Didi got a license to operate as a private ride hailing company in Shanghai, which Uber has applied for as well.

Beyond that, people arguing Didi and Uber are in the same boat simply don’t understand geopolitics, any more than they understand Didi’s business.

To the first point: The Chinese government has shut down technologies where you can look up or reference everything from Tiananmen Square, major natural disasters, or even the recent stock market crash, because it is so fearful of an uprising of any kind – particularly now that there’s uncertainty in the economy. Let’s think about what Uber is: A company that controls transportation grids of major cities; a company that has used its app and driver network expressly to encourage political action; and a company that has hired former leaders in the CIA and Department of Defense. It’s a company that was tone-deaf enough to these geopolitical concerns that it sent Emil Michael – a former special advisor to the Secretary of Defence and current advisor to the Pentagon – to handle the fundraising for Uber China.

The proposed changes to the law in China hint at this issue. From Quartz:

Other points in the draft reiterate China’s efforts to keep internet companies of all kinds under its own supervision. It states that “online pre-booked taxis” must store their servers in China and share data with local transport authorities, and adds that this data cannot be shared overseas. Uber says it already stores its data for China within the country’s borders, and claims to have obtained a license to operate as an internet company in Shanghai

Uber may claim it’s technically compliant, but it’s a sign of just how twitchy China is about this information being controlled by a US company.

The concern has grown enough here in the Valley that, in recent private conversations, usually cocksure Uber investors are starting to acknowledge the point. Admitted one recently, “You’re probably right about China.” Said another with direct knowledge of the Chinese market, “The best use of that $1.5 billion [Uber China just raised] would probably be to invest it in Didi.” Hey, it worked for Jerry Yang and Alibaba.

For obvious reasons, both asked they not be named.

To the second point: Didi isn’t a mere Uber copy cat or competitor. Didi operates buses, corporate shuttles, a black car service, a carpooling service, a taxi service, and peer-to-peer car sharing services. Several of these could be threatened by this legislation, but presumably, not all. Didi isn’t merely trying to help rich people annoyed with taxis get around. They are trying to comprehensively solve the gigantic clusterfuck that is transportation in modern China, with price points between $1 and $30 per ride depending on what you pick.

Chinese cities add some 20 million people per year -- the equivalent of two and a half New Yorks-- and the average speed a car travels there is less than four miles in an hour. There are more than 800 million urban Chinese and less than 20% of them own a car. That isn’t changing: Strict caps on license plates mean about four out of every 100 who apply to drive their own car in cities like Beijing and Shanghai are successful. And public transportation is one of many woefully outdated pieces of urban Chinese infrastructure. Cognisant of all of this, Didi has always had an approach of working with existing infrastrastructure – not trying to replace it.

They’ve got the cash and the local connections, and don’t pose the national security risk Uber does. They’re the easy bet to figure a way to make things work with the government.

Witness: Its partnership with Shanghai’s Taxi Authority – a move no one could ever see Uber making. Witness, too, comments made by Didi’s president Jean Liu at its press release with Lyft last month. As I wrote at the time:

“We do believe that transportation should be transformed with technology however we think that transportation should be done in a more collaborative, peaceful, and constructive way in regards to millions of people’s livelihoods. Our mission is to increase the average pay of taxi drivers, and achieve collaborative reform from within and avoid abrupt termination.”

She continued to say that approach is why Didi is confident it can find “common ground with regulators and stakeholders.”  

Lyft’s comments about respecting drivers is just some nice brand positioning. But for Didi it is a clear message that it isn’t about disrupting, ripping and replacing, or in anyway firing or dislodging taxi drivers or moving to an era of self driving cars because “drivers are expensive!” That message is key to not getting shut down in China. Because if the fear that a US company with deep ties to the state department controlling urban infrastructure isn’t enough to get Uber shut down (and it almost certainly is), there’s that message: Uber will kill jobs in China; Didi will not. And there’s no way Uber can climb back from its position on “disruption,” destroying the “asshole called taxi” and a full-throated celebration of the impending robot-car revolution. 

Sure, this new law may hurt parts of Didi’s business. But to assume the news is equal for Uber and Didi misunderstands China and the basic DNA of both businesses. It’s a stumble for Didi, no doubt. But for Uber, it’s just the beginning.