SHANGHAI—In the race for legal legitimacy in China's fast-growing market for private rides, Uber Technologies Inc.'s local rival has become the first to cross the finish line.
Shanghai city officials on Thursday said they granted Didi Kuaidi Joint Co. authorization to run an online private car-booking platform in the city. The authorization requires the Chinese ride-hailing app provider to register and insure its cars and drivers, as well as insure passengers.
In return, Didi Kuaidi can operate an Uber-like ride-hailing business in the city without the legal doubts that plague the company and others in various places around China, a market with more than 700 million potential urban commuters and a growing middle class that can increasingly afford upgrading from taxis. Didi Kuaidi said it would now seek authorizations from other Chinese cities.
Didi Kuaidi started out in taxis, but now its private-car service makes up about half of its trips.
"It's a good start," said Cheng Wei, chief executive of Didi Kuaidi. "We are confident we will be successful all over the country."
The move puts a spotlight on Uber's own efforts to win legal legitimacy in China, just one aspect of intense competition between Didi Kuaidi and its U.S. rival in a market they both consider essential.
Uber China said it is "actively preparing" material for its own application in Shanghai, as well as in other Chinese cities. It cited its efforts to localize much of its business—including placing servers in China—to comply with local laws.
"Uber China is a company run by Chinese and backed by Chinese investors financially," said Uber spokeswoman Josephine Yin. "We cooperate with the Chinese government and offer services catering to Chinese demand for transport."
Sun Jianping, director of the Shanghai Municipal Transportation Commission, said he had briefed Uber on the requirements earlier this year and was prepared to consider its application. "We are open to all car hailing apps as long as they meet the criteria and comply with Chinese laws and regulations," he said.
Both companies are racing to emerge from a Chinese legal limbo that speaks to the rapid expansion by both Uber and Didi Kuaidi. It marks the latest example of untrammeled growth in China's Internet—in everything ranging from e-commerce to financial transaction to online-to-offline services like restaurant delivery—that has seen entire industries zoom ahead of Chinese regulators.
Didi Kuaidi and Uber have invested heavily in private-car-hailing services, which an increasing number of Chinese use via smartphone apps. Didi Kuaidi has just raised $3 billion, and Uber has earmarked more than $1 billion for the Chinese market.
As of the end of June, Didi Kuaidi controlled more than 80% of the Chinese private-car-hailing market by ride volume, according to market research firm Analysys International, compared to 15% for Uber. But Uber has declared China its most important overseas market and has set out a plan to expand to 100 Chinese cities from about one-fifth of that in the next year.
Shanghai is traditionally a test-bed for China's new economic policies before they are rolled out nationally. Since June the Shanghai government has allowed the city's taxi drivers to use Didi Kuaidi's app, the company's core business before it went head-to-head with Uber in private rides.
Private taxis are technically illegal in many places in China, and some local governments have moved to restrict such services. Beijing city authorities blamed Didi Kuaidi and Uber in July for increasing traffic congestion and said the companies were suspected of running illegal taxi services and evading taxes, according to China's official Xinhua News Agency.
However, China's top transport authority has said that private taxi services offer a more convenient and efficient means of transport. Transport Minister Yang Chuantang told official broadcaster China National Radio in March that the ministry was working on guidelines to oversee such services.
Under Shanghai's initiative, private car-hailing apps must obtain an Internet content-provider license from the industry ministry, their servers must be stationed in China, and they must agree to share data with local governments, said Mr. Sun, the Shanghai transportation official.
To localize its China business, Uber in December tapped China's top search-engine operator Baidu Inc. BIDU -2.49 % as a strategic partner. Also, Uber China has officially registered in Shanghai as a separate business entity called Shanghai Wubo Information Technology, run by Chinese managers.
Didi Kuaidi, valued at $16 billion, is the result of a merger between taxi app Kuaidi Dache, backed by Alibaba Group Holding Ltd. BABA 1.15 % , and Didi Dache, backed by Tencent Holdings Ltd. TCEHY 0.11 % , in February.
China's Didi Kuaidi is seeking to expand a global alliance to curb Uber's influence. In March, it invested $100 million in Lyft Inc., Uber's biggest U.S. rival. In August Didi Kuaidi and its backers at Tiger Global Management LLC and SoftBank Group Corp. 9984 1.54 % led a $350 million investment in Singapore-based GrabTaxi. Last month it invested an undisclosed sum in Ola, India's largest taxi-hailing app by market share.
—Rose Yu
Source: China's Didi Kuaidi Gets License to Ride in Shanghai
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