While announcing to expand a $1.5 billion financing plan, Didi-Kuaidi, a major car-hailing service provider in China, said on Friday that high subsidies in the industry is damaging the market and causing fraud.
Cheng Wei, co-CEO of Didi-Kuaidi, said in an letter dated Friday to shareholders that the company decided to increase the scale of financing after seeing strong subscription demand for its $1.5 billion fund-raising plan announced in the previous week, news portal chinanews.com reported on Friday.
A PR representative from Didi-Kuaidi confirmed the authenticity of the CEO's letter reported in the media when contacted by the Global Times on Sunday.
In addition to the first financing plan since the two companies merged in February, Cheng also mentioned in the letter the matter of subsidies and said, "We are always very cautious about the amount of subsidy because we know that a very high subsidy, such as two or three times the cost of car service, is harmful for market development and will lead to fraud."
Based on scale advantage and high efficiency, Didi-Kuaidi provides only one-fifth amount of what competitors give to drivers as subsidy, Cheng said in the letter.
It is widely believed that one of the major competitors Cheng referred to is US-based car-hailing service provider Uber.
"Uber provides higher subsidy than Didi-Kuaidi and that is one of the reasons I use Uber more," a 26-year-old Beijing resident surnamed Wang, who has been a part-time Uber driver for six months, told the Global Times on Sunday.
The subsidy for each deal constantly changes during a day - the subsidy could be 3.2 times the car fare during rush hours while the rate is lower at other times. Despite this, the average subsidy Uber gives to drivers for each deal is about three times the fare, Wang said.
The PR staff from Didi-Kuaidi said that there was no fixed subsidy standard since it was often adjusted.
Uber's budget service, People's Uber, offers a very low fare to customers so without a high subsidy, the fare may not even cover the gas cost, Zhang Xu, an analyst with Analysys International, told the Global Times on Sunday.
The People's Uber service has no flag-down fare and charges 1.5 yuan for each kilometer, according to an introduction on Uber's app.
Didi-Kuaidi also offers a cheap car-hailing service called Kuaiche, with the same fare rate as People's Uber.
The subsidy strategy cannot last forever but no one in the industry will give up the tool in the near future, Hu Dan, an analyst with iResearch, told the Global Times on Sunday.
"Unless there is a consensus reached in the car-hailing industry, no one can stop the subsidies," she said, noting there is little subsidy given to taxi drivers now because Didi and Kuaidi occupy most of the market after the two merged into one company.
The generous subsidies have also led to some cases of fraud. Some drivers ask or hire others to falsify car-hailing deals through apps in a bid to make an easy profit from the subsidies, media reports said.
The money-burning subsidies and fake drivers are not the only concerns faced by car-hailing companies.
These companies have encountered many protests from the taxi industry in different places around the world, with the latest one in France intensifying to a new level.
On Thursday, taxi drivers in several French cities turned a protest against Uber's drivers and passengers into a violent fight, clashing with riot police and burning cars, the Washington Post reported on Thursday.
The car-hailing services take away some passengers from taxies but also expand the market by attracting more people to using car service, Hu said.
But when car-hailing service companies stop offering coupons for customers, the price-sensitive customers will go back to the taxis, Hu said, noting the target customers of car-hailing services and taxis are quite different in nature.
Meanwhile, car-hailing services are forcing the taxi industry to conduct reform. For example, the Shanghai municipal government cooperated with Didi-Kuaidi and launched a taxi-hailing online platform, Zhang said, noting the reform based on cooperation between the local government and Internet companies could also be carried out in other cities.
