Internet giants battle over China's taxi-hailing market

Competition in China's taxi-hailing market is heating up as the country's largest search engine Baidu signed a strategic cooperation and investment agreement with the U.S. app-based transportation network Uber Wednesday.

So far 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 with its local competitors Kuaidi Dache and Didi Dache accounting for almost 99 percent of the market with 154 million registered users in more than 300 Chinese cities.

Uber's entry into the Chinese market last year was low profile and currently operates in nine Chinese cities. Baidu, which will buy a stake in Uber, will use its map service and search engine advantages to boost Uber's market share.

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

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

Baidu's investment, though the exact amount has not been publicized, is expected to prompt 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, among the first batch of drivers to align with Kuaidi, now makes an additional 1,000 yuan (163 U.S. dollars) a month. He receives as much as a 10 yuan subsidy per deal from Kuaidi, but says he can gradually feel the "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 the luxury-car pick-up services charge nearly twice or more than normal taxis, it is still popular as people can take advantage of discount coupons from Quaidi 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 the 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 cellphone but said it was still difficult for her to get a taxi during rush hour.

"The market demand is huge, while 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 integral 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 non-profit 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?" said Wu.

"And how can they guarantee the safety of passengers?" he said.

There are still loopholes in the regulation of 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 can not take passengers for profit. Most of the taxi-hailing apps claim that they cooperate with car-renting companies to run their car pick-up businesses to avoid regulatory risks.

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