By William C. Kirby
ON August 1 Uber announced that it’s selling its operation in China to Didi Chuxing, a rival Chinese ride-sharing company.
United States news coverage has focused on Uber’s capitulating to competition and getting schooled by its Chinese foe. Still, I believe that Uber is leaving China because of interference from the state.
Uber’s aggressive push into China was made possible because the space was largely unregulated. The company founded multiple local entities in China to compete in different urban markets.
Many successful private companies in China have realized they can succeed where the government hasn’t yet set regulations. Uber was taking losses to win market share that were unsustainable. But the same goes for its chief rival. Didi Chuxing had become the dominant Chinese player in the space. But neither company could afford the costs needed to win new drivers and riders and markets.
Uber was negotiating with Didi Chuxing as a new regulatory scheme was being written. The nationalization of industry regulation was bad news for a startup that depended on local variance and gray zones. Under the new regulations, the data collected by Uber would come under the purview of the government. Market prices would prevail, the regulations state, “except when municipal government officials believe it is necessary to implement government-guided pricing.” Uber would have to get both provincial national regulatory approval for its activities anywhere in China. Online and offline services would be regulated separately.
Where the Chinese state steps in is where entrepreneurship goes to die. In selling its China business to Didi Chuxing, Uber is getting out of its China operations at the right time and at a reasonable price.
William C. Kirby is the Spangler Family professor of business administration at Harvard Business School and the T. M. Chang professor of China studies at Harvard University.