A user is using ride-hailing app Uber. Photo: Reuters

Despite a barrage of criticism deriding its private-car hailing service in China as illegal and unreliable, Uber Technologies Inc. remains undaunted in its bid to further penetrate into the lucrative market, exploiting the loopholes in regulations on car-hailing apps.

Earlier this month, sources revealed that the American car-hailing app is poised to raise as much as $1 billion to finance its business in China where its Chinese division has been negotiating with potential backers for investment possibly valued at about $7 billion to $8 billion.

The deal marks the first time the San Francisco-based company has planned to introduce outside investors into a local market, amid fierce competition from its Chinese arch rival Didi Kuaidi, which is endorsed by local Internet giants Alibaba and Tencent, Bloomberg reported.

Greater localization

The disclosure of the funding program came several days after Uber CEO Travis Kalanick announced that he wanted to set up a Chinese company which was made up of local employees, partners and investors during an interview with Caixin, a prominent Chinese business magazine.

Admitting the fact that Uber's Chinese business will be run as a part of Uber Global, Kalanick expounded the importance of transforming Uber China into a distinct entity with an independent management system and headquarters and operated by local general managers, because "China is so different from the rest of the world". He said that Uber China also needs Chinese investors and shareholders as well.

The Uber app completes approximately 1 million transactions each day in China, according to a June letter to investors from the 39-year-old entrepreneur, who attributed the encouraging sales performance to the penetration speed of new technology in China which is faster than elsewhere in the world.

Shrugging off the allusive ads of Ucar, a ride-sharing app owned by China Auto Rental, the country's leading car rental service provider, which questioned Uber's ability to offer safe riding experience, Kalanick said that the large user base attests to the reliability and safety of the Uber app, adding that it is important for his team to learn to be modest in the competitive Chinese market, especially for an exotic challenger.

"It has been a long time that I have had no need to pay for or paid little for an Uber ride, because I was always given electronic coupons that cancelled out much of my taxi fees. The Uber app is really a gospel for me," Wang Xuan, co-founder of a Beijing-based charity startup, told Sino-US.com.

The young lady said that she is still thankful to an Uber driver who turned on the air conditioning at full blast to prevent her from being bitten by mosquitoes on a summer night. "The driver jested at the time that he wanted to freeze the mosquitoes to death," Wang giggled.

Uber heavily subsidizes its private car drivers, leading to cheaper prices compared with the traditional cab drivers, who have staged several protests against what they say is unfair competition from Uber.

Kalanick, who has been in China for about 50 days in the first half of this year, said that Uber will stop giving subsidies to its drivers with the growth of its business in China. Kalanick further pointed out that Uber cars are not tailored for customers who just call a taxi by stretching out a hand on the street, but for those who really enjoy easy travel in the city (by clicking their cell phones' screens). He hailed it as a good solution to avoid the idling of cabs on the streets because Uber cars can always achieve full utlization, especially at a time when Chinese cities are limiting the number of vehicles in order to curb pollution.

Looking into the future, Kalanick said that Uber Global and the new investors will continue to increase investment in the Chinese market and that the company will build a reliable transport network in Chinese cities where users' needs can be met anywhere and anytime.

Relationship with government

China's Ministry of Transport has mandated taxi-hailing app operators to remove private cars from their platforms, urging that all vehicles used should be run by either taxi firms or car rental companies.

In May, Uber's offices in the southern Chinese city of Guangzhou were raided by the police on suspicion of using private car drivers to provide unlicensed services.

Recently, there was speculation that a regulation on online private car-hailing service will soon be released, which brings private cars offering such service into the government's management of taxi, sets high thresholds for private taxi drivers and their cars, and orders car-hailing companies' information centers to be based in China.

Uber, which first entered China in August 2013, has registered an entity in Shanghai with the biggest shareholder being its headquarters in the United States, adding to the difficulties the American online car-hailing service provider has in doing business in China. It might be a major reason behind Uber's decision to bring Chinese investors and shareholders on board.

In addition, Chinese regulations stipulate that foreign companies in China should not do business related to Internet content unless they are granted ICP (Internet Content Provider) license. Sources said that Uber's Shanghai company has not obtained an ICP license so far.

When asked about his opinion about the withdrawal of Google from the Chinese mainland, Kalanick said that the general managers in charge of Uber's operations in different Chinese cities are responsible for establishing relations with local governments and that his company should learn from the successful experience of foreign companies operating in China, such as Apple.

Uber has been aggressively expanding its presence worldwide in recent years, but it has faced roadblocks in a few of countries, including South Korea, India and France.

In July, Uber announced that it will suspend its low-budget UberPOP service in France following a spate of violent protests by taxi drivers who said that the controversial service represents unfair competition because UberPOP drivers have no need to face the same rules and pricing restrictions.