Why Uber has been taken for a ride in China

The big news last week was that Uber, the California-based ride-hailing company, threw in the towel in China. It announced that its Chinese rival, Didi Chuxing, would acquire all of the assets of UberChina – including its brand, business operations and data. In return, Uber gets a stake in Didi Chuxing worth £5.3bn.

Why is this significant? How long have you got? In the first place it confirms that the plans for world domination cherished by all the US-based tech giants come to a juddering halt when they reach the Chinese border. China is already the world’s biggest internet market, and it’s set to get much bigger in the next decade, so Apple, Google, Facebook, Amazon and Microsoft saw it as the logical next territory for conquest. Three of them – Google, Amazon and Microsoft – have already had to withdraw, licking their wounds. (Facebook never really got started.)

Apple is still in there because of its iPhone (a prized fashion accessory among middle-class Chinese) but it’s now run into trouble with the granting of a weird intellectual-property case against the iPhone 6, and has been forced to shut down its iBooks and iTunes Movies stores.

You could say that, given that Google and Facebook are in the information business and the Chinese government is determined to censor the internet, they were always likely to have a bumpy ride. Accordingly, the Chinese have Baidu instead of Google, and WeChat instead of Facebook. But Amazon has made no headway in China either, and the field has been left open to Alibaba. We’ll just have to see whether Apple can weather the storm and reverse the recent decline in its Chinese sales.

If you were the betting type, however, you’d have said that if any western company were going to crack China, it would have been Uber. It has oodles of money, already operates in over 500 cities worldwide, and is led by a fiercely aggressive CEO, Travis Kalanick, who from the outset designated capture of the Chinese ride-hailing market as a key strategic goal for his company. In pursuit of that goal, he spent much of the last two years in the country and avoided most of the mistakes that naive western outfits make when they arrive in China. So if Kalanick has decided that the game isn’t worth the candle, then it’s time for the rest of us to ponder the implications of that conclusion.

In doing so we may usefully learn from Google’s experience of trying to do business in China. As US journalist Steven Levy puts it in his summary, “Google found that even after a company agrees to go along with China’s censorship and data demands, regulation doesn’t stop. Put simply, China likes locals to succeed over foreign companies, and will act accordingly. Google was in direct competition with a local company, Baidu, which seemed to copy Google’s business plan and even its interface. China had an interest in seeing its home town search engine win, and turned out to be less than scrupulous in playing the role as a neutral arbiter.”

Official harassment, writes Levy, “seemed less to do with regulations and more like harassment. The sanctions appeared directly tied to how well Google was doing in the marketplace. Google executives believed that Chinese officials had drawn a line in the sand – that when Google market share approached 30%, suddenly bad things would happen.”

But, hang on – isn’t China a member of the World Trade Organisation, members of which have signed up to all kinds of rules about free markets, and no government interference in trade? Quite so. Yet here’s what the American WTO representative says in his latest report to Congress on China’s compliance with these obligations: “Many of the problems that arise in the US-China trade and investment relationship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions.”

All of which has a sudden contemporary relevance for Theresa May & co. You will recall that China was seen by Brexiters as one of the exciting trading partners for a liberated UK, and that WTO rules would ensure a level playing field for plucky British entrepreneurs as they ventured into the Middle Kingdom. For these fantasists, the Uber surrender has a simple message: dream on.


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