Subsidies to ride-hailing business will not stop, Didi says

Three days after China legalized ride-hailing services, Didi Chuxing announced its acquisition of Uber China, thereby building its market share to 93.1%. With the marriage of the two biggest ride-hailing platforms in China, it seems inevitable that prices for users would go up and income for ride-hailing drivers would go down.

However, Didi will continue to offer subsidies for both users and drivers “over a fairly long term” – or at least that’s what Didi said. As to how long that “fairly long term” is, this will be determined by below major factors.

Policies and regulations may restrain the prices and subsidies

According to the regulations published in late July, ride-hailing platforms whose legal status has been officially solidified must not “disorder the market with below-cost prices”, nor can they “monopolize the market by offering excessive subsidies”. In other words, regulatory constraints have been attached to ride-hailing service providers, making it difficult for them to burn cash to win users as they once did.

Ride-hailing platforms no longer need to keep the price down artificially

Secondly, it is now less necessary, and less meaningful, for ride-hailing platforms to keep the price down artificially. In 2015 alone, Uber burned USD one billion (RMB 6.7 billion) in China, and Didi, at least RMB 10 billion, but the battle can finally end now that the two parties have decided to work together. Despite the mild success of other competitors in the field such as Yidao and UCAR – which is also why subsidies will not be cancelled in a short term – Didi now has an absolute advantage in terms of the market share.

Competition will be the future

Ride-hailers are paying more for the same distance since early this year, Tencent Tech reported. Didi’s price has grown from last year’s RMB 1.5 per kilometer to this year’s RMB 1.8 per kilometer, and Uber China raised the price from RMB 1.5 per kilometer to RMB 1.79 per kilometer. There has been a trend for a rising price, and competitors must find out their own niche to target: different groups with differentiated needs.

Local governments are influential, too

According to Tencent Tech, the recently published regulations serve as a guide for local governments, who are in charge of making their own detailed regulations for ride-hailing platforms – and the detailed regulations will affect how much the price would go up.

Overall, subsidies for ride-hailing are not going to disappear soon, though they are being cut and may be cut even more in the future. At the end of the day, the market has the final say.

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