Uber on a collision course with China's taxi drivers and cartels

News of Uber racing into China brings to mind images of young, rich guys with naked girls in Ferraris, racing late at night on a Beijing ring road. You know it's going to end badly - though in Uber's case, the young, rich guys will be in a billion-dollar wreck instead of a million-dollar one - but it really doesn't bother you that much.

Uber is making its presence felt as it chases an initial public offering. The company's reported valuation - US$50 billion - is in the stratosphere, so you know Silicon Valley and Wall Street are looking to cash out. Hyperbolic statements about the China market, which Uber chief executive Travis Kalanick isn't reluctant to make, will help keep the valuation up until an IPO.

But Uber has two big problems in China: its millions of taxi drivers, and the local cartels for which they work.

Taxi drivers universally hate Uber, Silicon Valley's latest "disruption" to make our lives better, because Uber makes their lives worse. Uber puts unlicensed, unregulated, uninsured private drivers on the roads to take taxi customers at cut-rate prices. China has millions of taxi drivers, many making barely enough money to feed their families. What exactly do they do when taxi driving dries up?

Unlike, say, Microsoft, whose apps made millions of Chinese more productive and richer, Uber's app makes millions of Chinese less productive and poorer, even as Kalanick boasts of the "jobs" the company creates. He uses the word in a Silicon Valley, new-economy kind of way. To keep costs down, Uber claims its drivers are independent contractors, not employees. The California Labour Commission rejected this argument last month, just one of scores of legal problems Uber is facing around the world as management races to build scale - and perceived value - before an IPO.

The company has got itself into so many bare-knuckle fights with regulators around the world - Portland, Oregon's transportation commissioner called company management "a bunch of thugs" last year - it hired a former Obama public relations honcho to "soften" its image. Its public statements now ooze Silicon Valley cool-talk, but its actions haven't changed. It just hides them better.

Kalanick calls Uber's serial international law-breaking "principled confrontation". Prosecutors around the world call it criminal and illegal. Impudently breaking foreign laws to be first and biggest seems more like a financial play than a "principled" one.

Following a ban in France, then large protests by French taxi drivers when Uber ignored it, prosecutors detained two Uber managers in Paris last week and set a date for their trial in September. A company spokesperson told The Wall Street Journal the two went "voluntarily to a police hearing". Sure.

The French aren't alone. Scores of Hong Kong taxi drivers protested against Uber this week. Officials in Germany, Italy, Spain, Belgium, Holland and South Korea, where prosecutors have indicted Kalanick, have all taken steps to ban or limit the company's services. So have officials in several US cities, hardly a socialist labour market.

Almost all are wrestling with the issue of what to do when Silicon Valley millionaire world-changers looking to eliminate life's little inconveniences flout laws that protect people near the bottom of the labour pool. Officials in Delhi banned Uber in December following the alleged rape of a passenger by an Uber driver. Uber ignored the ban. Principled confrontation.

Now Uber is racing into semi-opaque China, where the transport ministry in January banned taxi hailing apps from using cars and drivers without taxi licences. Following raids of Uber offices in Chengdu and Guangzhou in May, California-based Kalanick, who is "personally overseeing day-to-day progress in China", told reporters, "Uber will try to learn the local laws and bylaws to make sure its service is legal in China".

Good luck with that.

It won't make a difference. Uber's strategy is to sign up Chinese drivers by giving them free iPhones and paying them more - for now - than licensed taxi drivers, a lot more in some cases than they charge customers. Never mind that this smells like dumping. Once Uber's price-war money runs out, what will keep drivers or customers from going elsewhere? Drivers' locked iPhones? It's China.

And there's little about Uber's technology that others can't duplicate, so no edge there. Kalanick admitted to investors that one competitor "with a massive taxi user base" has already "cloned [Uber's] core product line". That local competitor, Didi Kuaidi, has an 80-90 per cent market share in taxi hailing, and is backed by Alibaba and Tencent.

Uber's price war is with local companies in regulated industries - which means that local "officials" are involved, like those who raided Uber's offices in Chengdu and Guangzhou. The only way they're not going to make life difficult for Uber will be if they get compensated for it. This could give a whole new meaning to what Uber calls the "sharing economy". But killing and cloning Uber, like officials in Guangzhou appear to be doing, may be more lucrative.

Driving a taxi - long hours, low pay and imperious customers - is hard. The last thing taxi drivers need is a bunch of Silicon Valley coders flooding their market with low-priced competition. You haven't seen "disruption" until you've seen mobs of taxi drivers blocking traffic and overturning illegal Uber cars.

And, yes, China's taxi industry might be inefficient cartels, but it's hard to picture Beijing, increasingly at odds with the US, letting a bunch of twentysomething Silicon Valley scofflaws collect billions of dollars from transactions involving unlicensed Chinese drivers driving Chinese passengers around Chinese cities, while taking income from millions of licensed, poor and angry Chinese taxi drivers.

Uber seems to be bringing social disharmony to China while picking the pockets of vested financial interests there. That's a bad combination, like doing 100km/h in your Ferrari with only one eye on the road. It's not likely to end well.

Robert Boxwell is director of the consultancy Opera Advisors