Cheng Wei: This risk taker pushed Uber out of China. Now he might be too big for Beijing


Cheng, 38, who is also called Will Cheng, is the youngest entrepreneur to head one of China’s biggest tech companies. It has been busy for the nine years since Didi was established: Cheng has took out a flurry of strong opponents and amassed nearly 160 million monthly active users in the first quarter of this year in China alone, nearly double the number of Uber users worldwide.

But the travel juggernaut is now in a precarious situation. It is one of the most important targets of China’s sweeping crackdown on technology and private companies that has no end in sight. Its stock has fallen more than 40% since regulators began surveying the company, wiping out $ 34 billion in market value.

Earlier this summer, Chinese regulators banned Didi from app stores as part of an investigation into its privacy and data collection practices, threatening its future growth. The pressure could dismantle Didi’s stranglehold on the Chinese market unless the company can appease the ruling Chinese Communist Party.

Didi refused to make Cheng available for an interview, and the company did not answer questions about Cheng or his activities.

A rapid and explosive rise

Before founding Didi in 2012, Cheng was Sales Director at Alibaba. Starting out as an entry-level salesperson earning the equivalent of about $ 200 per month, he quickly progressed to become the company’s youngest regional manager in seven years.

Cheng said he created Didi because he was fed up with not being able to take a cab on a business trip, according to a profile published in June in the Business Times, a Chinese financial news outlet. The “pain” made him think about how to solve the problem.

“I was thinking, how about making a rideshare app, so there can be fewer poor losers drenched in the rain?” Cheng said, recalling a depressing experience in Beijing when he couldn’t hail a taxi for hours during a storm, according to the outlet.

Cheng founded Didi with just 100,000 yuan (about $ 15,000) of his own money, and 700,000 yuan (about $ 110,000) from Wang Gang, an angel investor who oversaw Cheng during his tenure at Alibaba. Wang’s initial investment was worth $ 1 billion when Didi went public.
Like its technology peers Baidu (BIDU), Ali Baba (BABA) and Tencent (TCEHY), Didi’s rise was rapid. When Cheng founded Didi, carpooling was still a regulatory gray area in China and taxis controlled the market. Taxi shortages were common, as government licensed taxi operators lobbied to limit the supply of licenses. This has fueled a boom in ridesharing apps like Didi.
Unlike traditional taxis, ridesharing companies do not require expensive and difficult to obtain permits for cars or drivers. Before the industry was regulated five years ago, many cities accused ridesharing apps like Didi of running illegal taxi businesses. Didi argued that it only provides a platform to connect passengers with cars owned by rental companies or other third parties.
Didi had learned to navigate this gray area. It has even reimbursed drivers for penalties imposed by authorities for breaking local laws, to keep Didi drivers on the road and to retain customers.

The Chinese central government at the time encouraged rapid innovation, and carpooling was never explicitly banned in China. And on July 28, 2016, carpooling was finally legalized in China. A few days later, Didi acquired Uber China.

In a letter to employees after buying his “big rival,” Cheng and company president Jean Liu hailed the legalization as a “milestone.” They said the company’s service had been suspended more than 30 times in various places and that “countless drivers” had seen their cars stopped and fined – but added that the country had finally embraced “the dawn of reform”.

“Reform and innovation always come at a cost,” they wrote. “The smart travel revolution has just started … [We want to] create a world-class technology company! “

After 2016, Didi continued to consolidate its mastery of Chinese VTC and, in 2018, controlled 90% of the Chinese market. That year, the company expanded to Australia, Brazil and Mexico as it targeted customers outside of its home country.

Its rapid rise, however, included controversy. In 2018, two female passengers were killed by drivers working for Hitch, forcing Didi to suspend the operations of its carpooling subsidiary. The killings led the government to pressure Didi to share real-time data about his vehicles and drivers with authorities, an arrangement the company has long resisted. At the end of 2018, he finally made concessions.

Problem with regulators

This pressure foreshadowed Didi’s problems this year. Beijing has taken a sharp turn against internet companies it says have grown too big and powerful, resulting in a massive crackdown that has affected technology, education, entertainment and other industries.

Under President Xi Jinping, the Communist Party is acting aggressively to curb unhindered private enterprise and send a clear signal that Chinese organizations must work closely with the government. Businesses that have outgrown too quickly will be monitored to ensure they are aligned with government priorities.

Didi ran into problems as he continued his $ 4.4 billion New York IPO, apparently despite evidence Beijing was unhappy. Regulators had expressed concerns about data security and suggested that Didi delay his listing, according to Bloomberg.

Cheng went ahead, but like other Didi leaders, he kept a low profile during the IPO that came on the eve of the Chinese Communist Party’s 100th anniversary. He did not ring the opening bell or spread the news on the company’s Chinese social media accounts.

Other executives from Cheng and DIdi kept a low profile during the company's US IPO, completely skipping the fanfare of the bells.

Days later, the Cyberspace Administration of China banned Didi from app stores, preventing the company from registering new users. The internet watchdog accused the company of illegally collecting and abusing user data – a wealth of places and routes with sensitive information about Chinese traffic, roads and citizens.

“From a government perspective, Didi has become too important to be controlled. Obviously, he wants to limit Didi’s growth in China,” said Tu Le, founder and managing director of Beijing-based consultancy Sino Auto. Insights. “The government also wants to make an example of Didi that no one can be out of step with the Party.”

Didi too faces the anger and mistrust of foreign investors.

U.S. lawmakers and investors have asked the U.S. Securities and Exchange Commission to investigate the Didi IPO fiasco. Eurasia Group analysts said such demands would “at the very least intensify political pressure” on the regulator to enforce a recent law that prevents companies that refuse to open their books to US accountants from negotiating on the American stock exchanges.

To many analysts, Cheng’s decision to go ahead with the IPO appeared confusing or reckless.

“No Chinese company can openly challenge the Chinese Communist Party and expect leniency,” said Alex Capri, researcher at the Hinrich Foundation. “[Didi] is too big and too powerful for its own good and has already crossed a threshold with the Chinese leadership. “

The company may have had a rationale in the form of pressure from investors to be listed on the stock exchange, as it had raised billions of dollars from venture capitalists. Another urgent reason was the adoption of a new law on data security in According to Winston Ma, an assistant professor at New York University School of Law, all Chinese entities must obtain government approval before providing China-based data to judicial or law enforcement agencies. foreign law.

A “ruthless market”

Didi still operates in China, as users who downloaded the app before the July ban have access to it, and the company insists it maintains “normal operations globally.” But hundreds of apps are rushing to take advantage of Didi’s struggles and cut its lead in the market by aggressively expanding, advertising, and offering big discounts.

Didi’s former rival Meituan, for example, relaunched its standalone ridesharing app after Didi was pulled from stores, offered coupons to new users and exempted new drivers from commission fees for a week. Other services backed by Alibaba and Geely Auto have also announced cash incentives or coupons.

“It’s a fierce market,” said Tu of Sino Auto Insights. “Everyone wants to get into this multibillion dollar industry, including traditional automakers.”

Hundreds of competitors are trying to take market share from Didi by offering deep discounts and spending a lot of money on advertising.

Still, Tu said, rivals are unlikely to fully threaten Didi’s dominance. He pointed out that Didi has spent tens of billions to acquire clients, and that it is a difficult business to run without a lot of funding because clients are usually not brand loyal if someone else can. reduce their prices.

Early government data suggested Didi’s existing business was unaffected after the ban, even though it could not register new users. The company processed 13% more orders in July than in June, according to China’s transportation ministry.

“The government just wants a healthier market, not kill Didi,” Tu said, adding that he expected Didi to survive, albeit with a “less daring” expansion plan.

Capri, the Hinrich Foundation researcher, was less optimistic about Didi’s future, especially as long as he continues to trade in the United States. “Parts could be nationalized,” he said. “Beijing will also actively fund smaller competitors to equalize the market and more easily exert control over major players. “

“The longer it will remain listed on the American market,” he added, “the more it will attract the ire of Beijing.”


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