Chinese government funds invest in rival Didi ridesharing

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Chinese public funds are piling up in fast-growing rival Didi Chuxing, taking advantage of regulatory pressure on the country’s largest ridesharing app.

Cao Cao Mobility announced Monday that it has raised 3.8 billion Rmb ($ 588 million) from a group of public funds based in the eastern city of Suzhou, to accelerate its expansion and improve driver safety.

“The government wants tech players to have state-owned money,” said Shaun Rein, founder of the China Market Research Group. “Beijing was not happy with Didi’s overseas business, with the support of foreign players such as SoftBank and Uber.”

Suzhou Xiangcheng Financial Holding Group and Suzhou Innovation Capital are among five investors who bet that a domestic rival can challenge Didi’s dominance over China’s on-demand transport sector. Cao Cao, which currently operates in 62 cities across China and was started by automaker Geely, raised Rmbn 1 billion in its first fundraiser three years ago.

Since Didi’s troubles with regulators began after its $ 4.4 billion New York IPO in June, Cao Cao has cut prices for users and increased incentives for drivers in a campaign of aggressive expansion.

The app, created in 2015, saw its biggest increase in monthly active users in July, surpassing 10 million users, according to company documents.

Didi has meanwhile been banned from registering new users until regulators complete an investigation into the security of his data.

Rival ridesharing companies have struggled to raise capital over the past two years, with Didi seen as unassailable by investors. Following the announcement of the investigation, the main food delivery platform in China, Meituan relaunched its carpooling platform, which it closed in 2019.

“There is currently a price war in the carpooling market. Consumers are happy with the crackdown – it forced everyone to cut prices, ”Rein said.

Analysts say the state’s investment in tech companies is the next phase in the government’s campaign to create a level playing field, after cracking down on the monopolistic and anti-competitive behavior of big players, including Alibaba and Tencent.

“Investing in Cao Cao makes financial sense for public funds, but the big winners are consumers,” Rein said.

Additional reporting by Edward White in Seoul