Chinese taxi app merger to reshuffle market

China's mobile taxi-hailing app operators Didi Dache and Kuaidi Dache jointly announced their strategic merger via their Sina Weibo accounts on Saturday, also Valentine's Day. [Photo/IC]

BEIJING - After a year of bitter rivalry, a merger between two Chinese major taxi hailing apps on Valentine's Day was the day's biggest surprise.

Didi Dache and Kuaidi Dache, both start ups, announced that they would put their differences aside and explore the sector together.

Didi CEO Cheng Wei said the deal was the largest merger in China's internet history and the combined entity would find its way on to the list of the top 10 Chinese Internet-based companies.

The newly founded company, which is yet to announce its official name, has been valued at $6 billion.

CHANGING WINDS

Industrial experts say that taxi-hailing apps will challenge established companies.

While passengers will reap the benefits of convenience and cheaper fares from the new merger, established taxi giants will not be so fortunate.

One of the most lucrative businesses in China, taxis reap considerable profits each year from exclusive government deals, but offer little in return for the end users.

The sector was untouched by the economic downturn as passengers had no other alternative, and most cab drivers' operation licenses were linked to companies.

However, after Kuaidi and Didi both launched ride-on-demand services last year, clients left traditional companies for better service and a more comfortable ride.

The apps generally provide two types of service: A taxi-hailing service, which is welcomed by cab drivers and ensures passengers are picked up by licensed cabs; or the more expensive ride-on-demand service, which offers higher quality vehicles that are owned by car-rental companies.

In east China's Hangzhou City, where Kuaidi's headquarters are located, its ride-on-demand service has 4,000 cars, accounting for nearly 40 percent of all licensed cabs. Cab drivers, already plagued by high contract fees, responded by striking for three days in August over falling passengers numbers, which they blamed on the apps.

Zhang Xu from Analysis International described the apps as a breath of fresh air in the rigid sector.

Industrial experts believe the merger will compel taxi firms to restructure.

"Taxi companies should have a sense of urgency," director of the Shanghai Municipal Transportation Commission, Sun Jianping said.