Uber installs server in China in effort to meet new rules
The establishment of Uber as a Chinese enterprise on a local server doesn’t automatically qualify the company for a business license to operate as a tailored taxi service in China, analysts said.
Liu Zhen, the head of Uber’s strategy in China, said on Aug 12 that Uber has established a server in China to better deal with local customers, and will operate as an independent company under Chinese management, funded with Chinese capital, and that it will cooperate with administrative authorities to serve Chinese passengers. She said Uber’s latest fundraising plan is going well in China and the company will offer more details at the appropriate time.
By setting up a server in China, Uber expects to be approved and stand firmly on legal ground after China passes a regulation on tailored taxi services. Once the regulation is passed, a move expected soon, a tailored car service platform can apply for a business license.
Under the regulation, a tailored car platform must set up its registered server in China, but Uber has been previously regarded as having established its server outside China.
Experts said Uber still has a long way to go and must do more to get approval from Chinese authorities.
Industry insiders said Didi Kuaidi, China’s largest taxihailing app, Uber and other tailored taxi services platforms have arrived at a key turning point of their growth, with tremendous opportunities and fierce competition.
Zhang Xu, an analyst at Beijing-based Internet consultancy Analysys International, said that “for a foreign carhailing platform to enter the Chinese market and to set up a server in China, it shows Uber has attached importance to expanding its business in China”. Uber is now transforming from an asset-light company into an asset-heavy firm by means of setting up servers, headquarters and a management team in China, he added.
The company’s development in China has long been troubled. Uber’s Guangzhou and Chengdu offices were investigated by authorities for “illegal operations” in April and May, suspected of organizing private cars to engage in business activities.
Zhang pointed out that setting up a server in China doesn’t mean Uber can be quickly deemed legal, even if the country passes a regulation on tailored taxi services. “It is just the beginning, and Uber needs to make more efforts to get a qualification,” Zhang said. “China has a strict regulation about the ratio of foreign investment in China, which should not exceed 50 percent. Moreover, the storage, transmission and management of any business data and information should be within Chinese territory, and the cross-border data transmission and usage will be forbidden.”
Liu, the head of Uber’s strategy in China, said she is looking forward to the upcoming regulation on tailored taxi services, saying: “It is a significant milestone for Uber’s development in China.”
According to statistics from Analysys International, Didi Kuaidi ranked first in the second quarter of 2015, with an 82.3 percent share of the market, followed by Uber at 14.9 percent and UCAR — China’s largest car rental service provider — with 10.7 percent.
China International Capital Corp estimates the potential scale of the Chinese tailored taxi market to reach 420.5 billion yuan ($65.7 billion).
Analysys International indicated that compared with the P2P (peer to peer) mode adopted by Didi Kuaidi and Uber, the traditional B2C (business to consumer) mode used by UCAR could effectively avoid the regulations on tailored taxi services and gain an upper hand in future competition.
He Xia, an expert with the Ministry of Industry and Information Technology, said China has formulated strict access rules for foreign telecom businesses, and Uber, as a global firm, needs to obtain an Internet content provider license. The key to getting an ICP license is that the controlling shareholder of a company should be Chinese and located in China.
However, the identity of Uber’s controlling shareholder is not clear, which becomes an obstacle for Uber to apply for an ICP license. Moreover, the process of application often lasts three or four months, he added.
Hu Dan, a senior analyst with the consulting firm iResearch, said tailored taxi services were positioned originally for highend passengers, boasting better service, while the ordinary taxi is aimed at ordinary citizens. So tailored taxi services should not threaten the ordinary taxi service, Hu said. However, at present, some car-hailing companies provide high subsidies for tailored taxi services, so the effect on ordinary taxi services seems to make a big difference.
“We will see whether tailored taxi services really shock the traditional taxi industry when high subsidies are prohibited,” Hu added.
Hu is optimistic about the prospect of tailored taxi services.
“The rapid development of tailored taxi services has proven there is a huge demand from the market, and the upcoming policies and specifications will make the tailored taxi industry become more normative, which is not bad news for taxihailing platforms.”
Uber expects to be approved and stand on legal ground after China passes a regulation on tailored taxi services.