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Uber's Burning $1 Billion a Year in China

Didi Kuaidi, a Chinese competitor, is giving Uber a run for its money — dominating the local market, and forcing the Silicon Valley giant to spend heavily for market share.
February 19, 2016, 2:20pm
Imagen vía EPA

US-based ride-sharing giant Uber admitted that it's burning through more than a billion dollars a year in China, as it fights a fierce price war against local rival Didi Kuaidi.

"We're profitable in the USA, but we're losing over $1 billion a year in China," Uber CEO Travis Kalanick told Canadian technology platform Betakit on Wednesday. "We have a fierce competitor that's unprofitable in every city they exist in, but they're buying up market share. I wish the world wasn't that way." Ride-sharing companies routinely lower their prices in the short term to gain new customers.

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Just a month ago, Uber's Chinese branch raised $1 billion in funding, primarily from Chinese corporations, which valued the Chinese unti at $8 billion —  but it seems despite the hype, the US ride-hailing app is being outpaced by its Chinese rival.

Didi Kuaidi says it hosts over 4 million rides a day in China, and controls over 80 percent of that country's private carng market. Just last month, Kalanick said that Uber has managed to control around 30 percent of that market. Uber says that around 30 percent of the company's global rides originate from its China branch. In fact, the southwestern city of Chengdu (population: 5 million) is, according to Uber, its No. 1 city.

Uber and Didi Kuaidi, backed by Chinese technology giants Tencent and Alibaba, have both spent heavily to subsidize fares to gain market share, betting on China's Internet-linked transport market becoming the world's biggest. Uber China said in an emailed statement that Didi Kuaidi was having to spend "many multiples" more than the US company to increase its share of the market, adding that Uber's China business was backed up by profitable operations outside the region. Uber is currently in nearly 60 countries and more than 300 cities worldwide.

A spokesman for Didi Kuaidi said that Uber's claims about its spending were untrue and that it is benefiting from its larger size.

"Smaller competitors have to bleed subsidies to make up for their insufficient driver and rider network," the spokesman said in emailed comments to Reuters. He added that the Chinese company now operates in 400 cities and had passed break-even point in half of them.

In January, Kalanick said that spending on such pricing strategies is "how you win" in China, adding that Uber aimed to beat Didi Kuaidi through deploying the spending more efficiently. Uber currently operates in more than 40 Chinese cities and plans to be in 100 by the end of the year.

"I prefer building rather than fundraising," Kalanick added in the interview with Betakit. "But if I don't participate in the fundraising bonanza, I'll get squeezed out by others buying market share."

Uber did not immediately respond to request from VICE News to explain exactly how its burning through $1 billion, and what, if anything it plans to do about it.

But it's clear China is not the first foreign market that's caused Uber grief. Taxi drivers in Paris have tried to launch their own rival app, and regulators in Germany booted Uber out of three major cities this past fall, for failing to comply with transportation regulations. In India, the country's largest taxi company Ola recently launched its own app, to prevent Uber from edging it out of the market.