LeTV’s latest Beijing investment could signal harder times for Uber

LeTV’s announcement of a strategic investment in Yidao Yongche comes as Beijing weighs up legislation that could be negative for Uber’s business model

PUBLISHED : Thursday, 22 October, 2015, 8:05am
UPDATED : Thursday, 22 October, 2015, 1:37pm

Chinese internet conglomerate LeTV announced a bold investment on Tuesday that seems inspired by both the success and potential failure of transportation networking company Uber.

Instead of piling into direct competition with Uber, they have instead chosen to invest in a platform that links up licensed operators and customers in the car rental market, an e-commerce concept deemed less at risk as the government weighs up new regulation.

LeTV, which controls Shenzhen-listed Leshi, and famous for securing the Hong Kong broadcasting rights to the English Premier League for three years starting in 2016, announced on Tuesday it has purchased a 70 per cent stake in Yidao Yongche, a car-rental company based in Beijing. LeTV did not reveal the cost of the investment.

LeTV was rumoured to be talks for a controlling stake in Uber China in early October, although both parties said these discussions never took place.

Uber China raised US$1.2 billion in its latest fund raising, which was completed last month.

Uber CEO, Travis Kalanick, speaking at Beijing event hosted Baidu in September, said he plans to expand the ride sharing app to 100 mainland Chinese cities in the coming year.

Chinese search engine giant Baidu is a co-investor in Uber China.

Analysts said LeTV’s investment strategy might have something to do with a draft regulation issued by the Ministry of Transport on October 10. The draft would have negative consequences for platform

of signing up owners of private cars and matching them with riders, potentially putting Uber and its competitors, out of business.

The Shenzhen-listed shares of Leshi jumped 9 per cent on Tuesday after the announcement.

Junyi Zhang, a partner with Roland Berger Great China office, agrees that LeTV could stand to benefit if the regulators come down hard on Uber and fellow ride-hailing app Didi Kuaidi.

“The highlight of the draft is that it bans private cars for taking online or mobile app booked chauffeur orders. If passed and made a formal regulation, Didi Kuaidi, the current market leader and its follower Uber will be forced to cut or reverse part of their business, and traditional car rental companies will have a chance to catch up,” he said.

In fact, Yidao Yongche itself had provided private ride-hailing services in China when it was founded in 2010. However, it eventually dropped that approach and transformed into a platform that connects car-rental companies using a system that has not drawn a wary eye from regulators.

“Because currently many of the cars connected by Yidao Yongche are actually under car-rental companies, rather than under individuals, Yidao Yongche is positioned in a more flexible place to handle the authority’s inspection if the draft got passed and enforced,” Zhang said.

Others also believe that the car rental industry is likely to see a revival if regulators clamp down on unregistered operators.

The share price of Hong Kong-listed CAR Inc., China’s largest auto rental outfit has risen 26 per cent in October.

Gerwin Ho, a Moody’s senior analyst said if implemented in its current form, the proposed regulation would be “credit positive” to CAR.

He said the technology used by CAR “substantially complies” with the proposed regulation.

“CAR will thus be among those pioneering companies which will operate online chauffeured car services under the proposed regime,” Ho wrote in a note last week.

A regulatory source in Beijing said different authorities were holding “fairly different opinions” towards the regulation of online ride-hailing businesses. In addition to the transport authority, the telecom authority, public security authority and even the State Council have all weighed in on the topic.

Still, there are signs that Chinese authorities want to embrace legislation that will help foster more innovation in the sharing economy.

“We feel there is room for adjustment for the draft regulation,”He Xia, a senior engineer at the Ministry of Industry and Information Technology said.

She acknowledged that the ride-hailing business was a huge “transboundary” market.

Zhang Guohua, an urban planner, and director of Comprehensive Transportation Institute, China Center for Urban Development, said China should learn from Europe, Japan and Singapore about how to deal with the internet-based chauffeur services.

“It is time to turn the page and embrace the changes brought by internet. It makes no good to stick to the old mindset,” he said.