Barbarians shown the gate

When Uber Technology chief executive Travis Kalanick announced earlier this week that Uber will sell its China operations to arch-rival Didi Chuxing Technology Co he joined a long line of global tech titans forced to retreat from China.

Yahoo surrendered China operations to Alibaba in 2005. EBay withdrew from China in 2006. Facebook and Twitter have been banned since 2009. Google shut down its China search engine in 2010. Instagram and Snapchat have been blocked since 2014.

Uber’s exit provides the starkest evidence to date that China—the world’s second largest economy and No 1 market for ride-hailing— is off-limits to non-Chinese technology firms.

Uber was a crucial test case of China’s commitment to global competition in the technology sector. The US company did everything right. Uber brought superior technology and offered a service posing no direct threat to the legitimacy of Chinese Communist Party. It had a well thought-out strategy and spent billions wooing drivers and customers. Kalanick himself went to extraordinary lengths to understand the Chinese market, cultivate local relationships and learn from the mistakes of his predecessors — to no avail.

Uber’s capitulation has been met with resignation, if not an air of “told-you-so” smugness by Western analysts, investors, and press. “In the short term, it may be seen as a loss, but in the long run, it’s a good move,” New York University professor Arun Sundararajan told Bloomberg. “Now they can focus on the rest of the world.”

Inc magazine’s Christine Lagorio-Chafkin agrees. Now Uber “can focus its efforts on potential initial public offering—and boosting profits elsewhere around the globe,” she opined. Many wondered why Uber hadn’t bailed out earlier— or even bothered trying to crack the China market in the first place.

Many Western observers have been quick to assert Uber had only itself to blame for its defeat. The company was too late to launch operations in China, said critics, and too slow to adapt to the market’s peculiarities. The Economist, faulting Uber for relying too long on Google maps (which don’t work well in China) declared flatly “Uber was outcompeted.”

But such assessments fundamentally misunderstand Beijing’s approach to technology and trade. As reports in The Wall Street Journal and other media make clear, Uber was done in by a combination of factors, including Didi’s superior fund-raising ability and collusion among its Chinese rivals.

Didi benefited from the financial backing of China’s two richest tech companies, Alibaba Group and Tencent Holdings, as well as Chinese finance sector giants China Life and China Merchants Bank. In May, Apple, which now counts China as its most important market, gave Didi a huge boost by investing a further $1 billion in the company, part of a fund-raising round that eventually helped Didi amass a capital war chest of over $10 billion.

Uber, meanwhile, was fighting a multi-front battle with Didi in China and Lyft in other global markets and fending off griping from US investors appalled by the billions Uber was spending on subsidies in China trying win over drivers and riders.

Didi’s Chinese investors helped in other ways as well. The Journal notes Uber had trouble marketing itself on China’s most popular mobile messaging app, We Chat, which is controlled by Tencent, and struggled to fend off Chinese scammers who used Taobao, controlled by Alibaba, to rack up fake rides and collect driver subsidies.

Harvard Business School professor William C. Kirby, in a Harvard Business Review article, identified another culprit: the Chinese government. “I believe Uber is leaving China not because of interference from its rivals but because of interference from the state,” he wrote. Kirby argues nationwide regulations issued by the Chinese government in May were the decisive factor that forced Uber’s surrender. In Kirby’s view, the US company had shrewdly exploited the gray zone of Chinese markets by creating a host of local entities to compete in different urban zones but national regulation of the ride-hailing industry, was an “impending disaster” for Uber.

Didi’s moves since Uber’s surrender belie assertions that selling out in China has left Uber stronger in the rest of the world. Just days after the deal was announced, Bloomberg reported that Didi and Sotfbank were leading a $600 million investment round in Grab, Uber’s biggest rival in Southeast Asia. And as the Washington Post points out, the merger between Didi and Uber may give Didi access to Uber software algorithms that have been one of its key competitive advantages.

Didi’s surrender in China leaves Apple the only major US tech company that can claim success in China. From a shareholder perspective, perhaps, it makes sense to argue that Apple CEO Tim Cook did the right thing by joining the alliance that drove the final nail into Uber China’s coffin. But if the experiences of Apple’s Silicon Valley peers are any indication, Apple’s own “China Dream” may prove short-lived.


Xi Jinping moves to weaken the power base of his predecessor

The New York Times reports that the Chinese president is curtailing the power of the Chinese Youth League, long regarded as a “finishing school for China’s political elite.” Among the institution’s most celebrated alums, former Chinese president Hu Jintao, current premier Li Keqiang, vice president Li Yuanchao and disgraced former head of the party’s general office Ling Jihua. The Times report comes amid widespread speculation that Xi and his premier have wildly divergent visions of how to revive the Chinese economy, with Xi advocating a stronger role for state-owned enterprises and Li advocating for state enterprises to retreat in favor of private enterprise.

The New York Times


Disney’s mighty mouse

Dalian Wanda, China’s largest entertainment conglomerate and new owner of Hollywood’s Legendary Pictures, vowed to roll back Disney’s expansion in China by launching its own high profile entertainment resorts. But only a month after the wildly successful opening of Shanghai Disneyland, Wanda has announced that it is closing its $8 billion dollar movie theme park in Wuhan for “upgrades and renovations.” No date for reopening has been announced. A local Chinese newspaper quoted Wanda employees as saying the resort was attracting only about 200 visitors per day.

The Los Angeles Times


Yes, the lead role in Hollywood’s first big-budget China movie went to Matt Damon — but China is okay with that

In the US, the decision to cast Damon as star of “The Great Wall,” directed by China Zhang Yimou, has triggered a furious debate on social media about “whitewashing.” In China, moviegoers can’t figure out what all the fuss is about. 

BuzzFeed


Chinese consumers take out their frustrations with rulings by The Hague on Apple, KFC and other Western consumer companies

Chinese angered by a recent judgment by The Hague against China’s territorial claims in the South China Sea are boycotting Western consumer products companies including Apple, KFC and demonstrating outside shops of both companies. But the Chinese government is trying to discourage the protests, and those seeking to vent against Apple have had difficulty distinguishing between genuine Apple stores and purely domestic copycats. 

Week in China


Who are the “China Whisperers” behind big deals involving the US and China?

The Washington Post profiles the network of elite brokers helping tech titans helping everyone from former Treasury Secretary Hank Paulson to Silicon Valley moguls like Travis Kalanick figure China out.

Washington Post


Elsewhere in Asia: Abe doubles down on stimulating Japan’s economy

The Japanese prime minister has detailed a package of financial measures it says is worth $274 billion, or more than 5% of Japan’s GDP.But so far global investors aren’t impressed.

The New York Times

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