A Wall Street Journal report says the Chinese government has initiated an antitrust investigation into Apple-backed Didi Chuxing’s acquisition of rival ride-hailing company Uber China. Apple invested a cool $1 billion in Didi a few months before the company’s grab of Uber.
China’s Ministry of Commerce said Friday it has opened an investigation into Didi Chuxing Technology Co.’s acquisition of Uber Technologies Inc.’s China business, after it received questions over whether the ride-hailing deal complied with the nation’s antitrust law.
The government has requested details of the deal, along with an explanation for why Didi hadn’t applied for an antitrust review before putting the acquisition’s gears into motion. The ride-hailing company had earlier stated it didn’t request a review “because Uber China’s revenue didn’t reach the 400 million yuan ($60 million) ‘turnover’ threshold triggering an antitrust review.”
At issue is the vague word “turnover” in China’s anti-monopoly law, which could be interpreted as either revenue or transaction volume, China accountants say. Uber China’s transaction volume almost certainly exceeds 400 million yuan, but Uber counts only a fraction of each fare as part of its revenue. That is because the company—like other “platforms” such as Groupon Inc.—says it is only a middleman and that it only passes along fares from riders to drivers, taking a thin cut.
Observers believe the Chinese government will eventually give the go-ahead for the deal. Lester Ross, a Beijing-based attorney with U.S. law firm WilmerHale, says Chinese regulators are simply “flexing their muscles” do to fear that a consolidation of ride-hailing firms would result in higher fares.
Apple is involved in the investigation, due to its $1 billion investment in Didi Chuxing back in May. At the time, Apple CEO Tim Cook told reporters the investment was a move by Apple to help it better understand the Chinese market.
“We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market,” Cook said. “Of course, we believe it will deliver a strong return for our invested capital over time as well.”