Rivals rush to take advantage of security crackdown on China’s Didi

Rival apps to Didi Chuxing are rushing to lure drivers and users as they seek to take advantage of a cyber security crackdown on the Chinese ride-hailing market leader following its blockbuster New York listing.

Didi accounts for 90 per cent of all car bookings in China, but the country’s estimated 230 ride-hailing apps are trying to chip away at its lead, accelerating expansion plans, offering discounts and boosting incentives for drivers, analysts said.

Many of Didi’s rivals are also backed by leading Chinese automakers. Cao Cao, a ride-hailing app from Geely that uses electric cars, recently cut the prices of digital coupons that give users various discounts and benefits by almost one-third.

T3 Chuxing, a Nanjing-based online taxi-booking service launched by three of China’s largest state-run automakers including FAW Group, has announced plans to expand to 15 cities, according to an internal memo cited by Chinese media. The company did not respond to a request for comment.

Didi is also facing an onslaught from Meituan, China’s leading food delivery platform. The group last week relaunched its ride-hailing platform, which it abandoned in 2019, and offered drivers Rmb100 ($15.50) to join. 

The probe by the Cyberspace Administration of China was announced two days after Didi’s July $4.4bn initial public offering, the biggest in the US this year. The investigation, which could last up to 10 weeks, came after the CAC asked Didi to consider delaying the IPO until after an internal review of its data security, according to people familiar with the matter. 

Didi has for years dominated the country’s on-demand transport sector, acquiring the Chinese business of US ride-hailing group Uber in 2016. Uber retained a stake in Didi alongside Japan’s SoftBank and China’s Tencent.

Didi’s main ride-hailing platform has been banned from registering new users until the probe is complete, a development that threatens its market share and expansion plans. Its platform and 25 others used by Didi’s employees and drivers have been removed from China’s app stores over concerns of “serious violations” of personal data law.

Didi was “fighting with their hands tied behind their backs”, said Tu Le, founder of Beijing-based consultancy Sino Auto Insights.

Didi was caught between pressure from investors to prove it could grow and avoid angering regulators further, Le added. “They will be hesitant to do anything until after the audit is completed.”

Didi’s pitch to investors during its brief roadshow last month was that it would keep expanding by targeting dozens of underserved, midsized cities.

At the company’s current growth rate of about 50m users per year, the halt in registrations under the app store ban could cost Didi more than 4m users for each month it is under investigation, according to Financial Times calculations.

While it is undergoing the CAC probe, Didi is pinning its expansion hopes on Piggy Express, a cheaper service launched in March 2020 targeting younger users in smaller cities that was not removed from Chinese app stores.

Analysts said Didi needed to retain its fleet of drivers as competition increased. In May, the company and other ride-hailing groups were warned by China’s transport ministry against taking high commissions from drivers, forcing Didi to publicly explain why some had been charged 30 per cent of fares.

But Didi’s efforts to keep its drivers could threaten its cost controls. In the first quarter, the company cut the earnings and other incentives its pays drivers to $5.7bn from $19.2bn in the same period in 2020.

One Didi driver in Beijing told the FT that Didi had recently introduced subsidies to drivers of Rmb100-150 per 30 rides.

However, the driver added that municipal transport police had in recent weeks begun more severe checks on ride-hailing permits, suspending those found to be breaking the rules for three months.

Didi “can only lose drivers”, she said.

Additional reporting by Emma Zhou and Nian Liu in Beijing