COMPETITION in China’s taxi-hailing market is heating up after the country’s largest search engine Baidu signed a strategic cooperation and investment agreement with the U.S. app-based transportation network Uber last week.

    The three largest Internet companies in China — Baidu, Alibaba and Tencent — all back different taxi-hailing apps.

    Although Uber is established in more than 250 cities across the world, it is tiny in China — local competitors Kuaidi Dache and Didi Dache account for almost 99 percent of the market with 154 million registered users in more than 300 Chinese cities.

    Didi Dache has attracted 68.1 percent of the country’s estimated 154 million taxi app users by May. Alibaba-backed Kuaidi Dache has 30.2 percent, according to the government-run China Internet Network Information Center in June.

    China had around 18 million taxi app users in 2013, which is set to rise to around 45 million by 2015, Chinese Internet consulting group iResearch says.

    “The taxi-hailing sector is at an early stage of development. It is a promising industry. Every Internet company wants to achieve something in this area. We will start by bringing a new experience to users,” said Robin Li, Baidu’s billionaire chairperson.

    Uber’s entry into the Chinese market last year was low profile and currently operates in nine Chinese cities: Beijing, Shanghai, Tianjin, Chongqing, Shenzhen, Guangzhou, Wuhan, Chengdu and Hangzhou. Baidu, which will buy a stake in Uber, will use its map service and search engine advantages to boost Uber’s market share.

    Travis Kalanick, Uber’s chief executive officer, said the key to competing with rival apps is localizing Uber’s services in China.

    The capital market is injecting heavily into the lucrative taxi-hailing business. Earlier this month, Didi raised US$700 million from investors, including Tencent and Singaporean state investment firm Temasek, while Uber raised US$1.2 billion to expand its overseas business.

    To promote their mobile-pay applications, Kuaidi and Didi invested more than 2.4 billion yuan (US$392 million) between January and August to give fare reductions to users and subsidies to drivers.

    Baidu’s investment, though the exact amount has not been publicized, is expected to encourage fresh competition in the taxi-hailing market.

    Wu Jun, a taxi driver in Beijing, benefited from the generous subsidies from Kuaidi Dache, which is backed by Alibaba, in the first half this year.

    Wu, who among the first batch of drivers to align with Kuaidi, now makes an additional 1,000 yuan a month. He receives as much as a 10-yuan subsidy per deal from Kuaidi but says he can gradually feel the increasing “threat” from the other major players as they change their strategies.

    Since July, Kuaidi and Didi, backed by Alibaba and Tencent respectively, both introduced a limousine hailing service similar to Uber.

    Although luxury-car pick-up services charge nearly twice or more than normal taxis, it is still popular since people can take advantage of discount coupons from Kuaidi and Didi. Uber currently offers first-time users a 50-yuan coupon.

    “I don’t think 154 million is the cap for the mobile taxi-hailing market,” said Lu Wei, secretary general of the Internet Society of China.

    “There is still much room in the market, especially in specialist areas like taxi-hailing for the elderly,” he said.

    The future will not necessarily be a price war, but rather will focus on service and business models, said Lu.

    Su Yang, a Beijing office worker, installed three taxi-hailing apps on her cell phone but said it was still difficult for her to get a taxi during rush hour.

    “The market demand is huge, but the key is how to make transportation much easier for commuters,” she said.

    Beijing is a city with more than 20 million people. The restriction on car ownership and congested traffic make taxis essential for many people.

    The city lifted its ban on carpooling in January in an attempt to ease traffic congestion and help tackle pollution.

    In quick response to the government’s new policy, Uber launched a nonprofit ride-sharing service called “People’s Uber,” which pairs up car owners with passengers and the only money exchanged is what the passenger pays the driver to cover the costs of the ride.

    For Wu Jun, it is a real challenge.

    “If millions of private cars join the taxi-hailing market, how can taxis survive?” asked Wu. “And how can they guarantee the safety of passengers?”

    There are still regulation loopholes in the taxi-hailing market, said Li Yuxiao, director of the Institute of Internet Governance and Law under Beijing University of Posts and Telecommunications.

    Under Chinese law, a private car owner cannot take passengers for profit. Most taxi-hailing apps claim that they cooperate with car renting companies to run their car pick-up businesses to avoid regulatory risks.

    The qualifications of private drivers, potential illegal operations and passenger safety are major problems for the government to tackle, said Li.

    “Although it is winter in Beijing, for Uber, we are entering the spring of our business in China,” Robin Li said. “Our efforts in China are unique and more unusual than anywhere else. You have to do things differently to succeed in China.”

    Uber’s China expansion comes as the taxi app developer is facing a number of high-profile regulatory hurdles in other global markets. It is currently banned in India after allegations that a driver on service raped a woman. A Spanish judge also ordered a temporary halt to the company’s operations in Spain.

    (SD-Agencies)

    ‘The taxi-hailing sector is at an early stage of development. It is a promising industry. Every Internet company wants to achieve something in this area. We will start by bringing a new experience to users.’

    — Robin Li, chairperson of Baidu