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Chinese state-owned funds are piling into a fast-growing rival to Didi Chuxing, taking advantage of regulatory pressure on the country’s largest ride-hailing app.
Cao Cao Mobility announced on Monday that it raised Rmb3.8bn ($588m) from a group of state-owned 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 China Market Research Group. “Beijing was not happy about Didi trading overseas, with the backing of foreign players including SoftBank and Uber.”
Suzhou Xiangcheng Financial Holding Group and Suzhou Innovation Capital are among the five investors placing bets that a domestic rival can challenge Didi’s dominance of China’s on-demand transport sector. Cao Cao, which at present operates in 62 cities across China and was started by the automaker Geely, raised Rmb1bn in its first-round of funding three years ago.
Since Didi’s problems with regulators began after its $4.4bn initial public offering in June, Cao Cao has cut prices for users and increased incentives for drivers in an aggressive expansion campaign.
The app, established in 2015, recorded its highest-ever increase in monthly active users in July, exceeding 10m users, according to company documents.
Meanwhile, Didi has been banned from registering new users until regulators complete an investigation into its data security.
Rival ride-hailing companies struggled to raise capital over the past two years, with Didi viewed as unassailable by investors. Following the announcement of the investigation, China’s leading food delivery platform, Meituan relaunched its ride-hailing platform, which it closed in 2019.
“There is a price war going on in the ride-sharing market right now. Consumers are happy about the crackdown — it has forced all the players to cut prices,” said Rein.
Analysts say state investment in technology companies is the next phase in the government’s campaign to create a more level playing field, after clamping down on the monopolistic and anti-competitive behaviour of big players including Alibaba and Tencent.
“The investment in Cao Cao makes financial sense for the state-owned funds, but the big winners are the consumers,” said Rein.
Additional reporting by Edward White in Seoul