Uber’s Chinese branch in Guangzhou made international headlines when the Industrial and Commercial Bureau and Traffic Committee teamed up with local police to raid its offices on April 30.
Police confiscated more than 1,000 iPhones, used by the company to keep Uber drivers connected to its network. Uber’s “lack of registration formalities” and “organizing private cars to operate illegally” were cited as reasons for the raid.
But China’s rapid technological advancement and increasing reliance on the Internet put software like Uber in high demand.
Private drivers have been encroaching on the traditional taxi market for two years. With Uber’s entrance into the China market, their voice is becoming even louder.
Based in San Francisco, Uber offers private driving services in 50 countries. The app is similar to Didi Taxi and connects passengers with private cars and carpooling services.
Within four years of its establishment, Uber grew to become one of the most valuable venture companies with an estimated value of $50 billion.
But it has never been without controvery.
Some public statistics showed that by March, Uber had caused the business volume of traditional taxi and bus systems in the US to decline from 85 percent to 52 percent. Taxi drivers in Warsaw, London and Chicago have united to protest the app.
Furthermore, Uber has been banned in Thailand, India, Korea and France for operating a chauffer service without a license.
While Uber lagged in the domestic market, the raids in Guangzhou and Chengdu served as much-needed free publicity. During the first week of May, downloads of the Uber app on iOS increased sharply and surpassed Didi Taxi to become one of the top-ranked travel apps, China Business News reported.
Uber’s late arrival to the China market in August 2013 put it in competition with well-established domestic players.
A recent report by Analysys International shows the total earnings of taxi booking apps in China reached 172 million yuan by the end of 2014. Didi and Kuaidi shared 99.8 percent of the profits.
With income scarce, Uber was left to forge partnerships with other players. In 2014 it signed a cooperation agreement with Baidu that brought in a $600 million investment and access to Baidu’s mobile maps and services. The insurance company China Life also invested $200 million in Uber.
Much of that investment has gone into staggeringly high subsidies, an approach Didi and Kuaidi used to expand their user base in 2014.
Last June, Uber slashed the price of its cars by 25 percent. A month later, in Shenzhen, Shanghai, Guangzhou, Chengdu, Hangzhou and Wuhan, it reduced the starting price to zero and began billing by the kilometer.
For drivers, Uber is a way to earn money part time. Uber offers a double subsidy on every fare carried between 6 and 9 am. The highest subsidy can reach 50 yuan.
In addition to the subsidy per order, Uber also began distributing awards depending on the driver’s total fares per week. After Spring Festival, the reward was increased to 100 yuan for drivers who beat his previous week’s record.
“Within two hours I can earn 170 yuan. Every night, I can deal with seven orders,” said Jiang Dechang, a part-time Uber driver.
Reforming the Taxi Market
Reforms to the highly monopolized traditional taxi market have been proposed for several years, but all have died in discussion.
Platforms like Uber offer a path around the need for reforms.
“The taxi industry is not operating according to market rules. To reform the taxi system, the first step needs to be creating a fair and open market,” said Jia Xijin, vice president of the faculty of public administration at Tsinghua University.
Professor Zhao Jian at Beijing Jiaotong University said that apps for booking cars should be permitted by the government under its policy of “Internet plus other industries.” Rather than cracking down on innovation, the government would better off building an effective system to direct and administer new technologies.