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Investors, Passengers Flock to Chinese Ride-hailing Apps

FILE - A taxi driver is reflected in a side mirror as he uses the Didi Chuxing car-hailing application in Beijing, China, Sept. 22, 2015.

Powerful foreign and domestic companies are making massive investments into ride-hailing apps in China, even though the legality of such services is still a topic of heated debate. Didi Chuxing, China’s top ride-hailing phone application, has a new investor – China Life Insurance, which is giving the company $600 million. Last year China Life gave money to Didi’s rival, Uber Global.

James Roy, Associate Principal at China Market Research Group, said, “They've become an extremely popular form of transportation, and in a very short period of time. There have been issues about the legality, but I think there have been signals by some municipal governments that they have been preparing rules under which app-based ride-hailing services can function legally.”

Incredible growth

Didi Chuxing and other apps have grown quickly. Didi has 300 million users of its taxi, chauffeur and bus services in China. It works with 15 million car owners, to offer 14 million rides a day.

Legal questions

But the company, and other ride-hailing apps like Uber, may be violating Chinese laws. A taxi company in Shanghai recently urged the Ministry of Transport to tighten car hailing regulations. Dazhong Taxi said the apps violate government licensing rules, and argued that the apps don’t have to pay taxi-service taxes, or take their cars off the road after eight years as is required of standard taxi car companies in China. Local Chinese taxi drivers and companies say this gives ride-hailing apps an unfair advantage.

Analysts like Li Yujie of the RHB Research Institute in Hong Kong, say the apps fill a need in the market, that until now, with China’s rapid growing urban population, has gone unmet.

Li said, “There is actually a lot of demand for taxi-hailing apps, especially in tier 1 and 2 cities, where people find it hard to hail taxis during peak hours, and where taxi drivers’ attitudes are not very good.”

FILE - A woman wearing a mask waits for a taxi on a heavy hazy day in Beijing.
FILE - A woman wearing a mask waits for a taxi on a heavy hazy day in Beijing.

Big money investments

As ride-hailing apps have surged in popularity in China, investment money has helped Didi and Uber expand. China Life Insurance’s investment in Didi includes an equity investment of $300 million, and a long-term investment of $305 million. This comes on the heels of Apple’s $1 billion investment in Didi earlier this year, which has helped raise the value of the company to $25 billion.

Uber is backed by Hong Kong-based China Taiping Insurance; Baidu; airline firm HNA Group; automaker GAC and China Citic Bank. Hillhouse Capital and Tiger Global have invested in both Didi and Uber.

Apps can provide information to companies

In addition to the ride-hailing apps’ popularity with consumers, Nicole Peng, the research director for APAC at Canalys, said the apps have the potential to provide insurance companies, governments and car companies with valuable data.

Peng said, “Actually this taxi-hailing app is the center of a lot of other services. For example, whether it’s the consumer or the taxi-driver, they have installed the apps, which can collect very useful data on the road, on the traffic, on people’s behavior.”

Uber says it expects to pass Didi Chuxing and become the most popular ride-hailing app in China, sometime next year.