It’s an unusual week, dear readers, when taxis dominate the news, but they did in China. Uber sold out to Didi, just a little while after Apple bought a slab of Didi, and just two days after both Didi and Uber were legalized. It means the end of the price war, and therefore a U-turn back to the cartel arrangement that was for so long the norm in this industry in China’s big cities.
It made sense for Uber to take the deal, for sure, but what is puzzling us is the way in which the party-state benefits from this series of arrangements. Virtually all the regular, traditional taxis in Beijing and Shanghai are owned by SOEs, and all those regular taxis are required to make a substantial payment upstairs. In Shanghai, for instance, each taxi makes a payment each day of more than 300 RMB – the amount has recently dropped from 360 to 330, according to our well-placed source in the front seat, who declined to be named for the purposes of this ramble, citing his constitutional right to privacy.
What we used to be curious about was how Uber managed to survive at all – what connections was it pulling that allowed it to compete with the party-state’s own conveyances and cash flows. That question is still interesting, but now passé. The next question is how the Didi arrangement will work for the interests of the party-state. No one knows how many private cars there on the roads using the Didi and Uber software to snag money from riders, but almost certainly more than the actual number of registered taxis. In others words, the effective number of cars in this market has probably more than doubled, but the cake remains much the same size. The answer of how the party-state benefits may simply be the responsible officials in the relevant departments don’t care about the competitive situation on the roads as long as the taxis continue to hand over the daily amount, regardless of how much extra pressure that puts on individual cabbies.
And how will they deal with Didi? The answer may again be as simple as tax payments. What a concept! Actually, that would mean they do get their cake and eat it too. We’re not sure this could be used as proof of the meritocracy argument, but it certainly suggests they are no fools when it comes to shifting gears.
In other news, the Shanghai stock index ended the week again below 3,000, and we are sticking with our prediction that Hillary gets the White House – the news this week suggests the possibility of a Republican Party meltdown is rising. Have a great weekend!