China's Ministry of Commerce said at a news conference on August 17 in Beijing that it was entitled to investigate whether the merger deal between Didi Chuxing and the China unit of the U.S.-headquartered Uber Technologies Inc suggested a potential monopoly.
The merger between two rival cab-hailing giant, Didi Chuxing and Uber China, has ended China's costly battle in the chauffeured service market.
Yet the Didi-Uber marriage is likely to create an unparalleled juggernaut that holds more than 90% of China ride-sharing market, fueling concerns about a de facto monopoly.
The merger was announced without making a business declaration to the Ministry of Commerce, a legal requirement for all businesses with large-scale operations whose merger could result in a monopoly.
In the light of the country's anti-monopoly law designed to "protect fair market-oriented competition", the merged entity could take advantage of its dominant position to the detriment of users and competitors both.
More importantly, the Didi-Uber juggernaut, born just a few days after China legalized the cab-hailing service, will almost certainly lead to exclusion or restriction of competition in the market.
Given its dominant role in the demand side, the newly merged entity is expected to further marginalize other competitors' market shares, and even infringe upon customers' legal interests.
The fear of monopoly aside, for any merger or acquisition in China, the total turnover of the companies involved should be more than 2 billion yuan ($302 million) in last fiscal year.
But since neither Didi nor Uber China is a listed company, it is difficult to estimate the size of the merged entity's business. So the merger is not immune from investigation by Chinese anti-trust authorities.
Many Chinese internet enterprises, including search giant Baidu Inc and e-commerce giant Alibaba Group Holding Ltd, have adopted a variable-interest-entities (VIE) structure to bypass restrictions on the services they provide. Their business is under the actual control of overseas shareholders in tax havens like Cayman Islands. And they sign special deals with domestic technology companies to enter the mainland market.
Such a mode, if not properly handled, could cause serious security risks such as the leaking of users' information or exposure of sensitive locations. And although China's draft foreign investment law has proposed to put it under supervision, it is yet to take effect.
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