Observers say merging business in China could be a boost for the sharing economy across the globe

The decision to combine the operations of Didi Chuxing — China's largest ride-sharing service — with the mainland operations of US giant Uber Technologies Inc will provide a global boost for the sharing economy, observers said.

Didi announced on Monday that it would absorb Uber's business in China, ending a costly battle between the rivals. The combined company may be worth $35 billion, according to some reports.

Uber China's other shareholders, including search giant Baidu Inc, will receive a 20 percent economic stake in the combined company. Didi founder Cheng Wei and Uber CEO Travis Kalanick will join each other's boards.

Arun Sundararajan of New York University's Stern School of Business said the deal is good news for the sharing economy in both the US and China.

"It signals how valuable the China sharing economy market is to global leaders," he said in an email. "It is good for the sharing economy in the US because it removes the biggest existential threat that Uber — the biggest sharing economy platform in the US — has faced. Now that this risk is eliminated, it paves the path for Uber to go public."

The sharing economy enables individuals to rent or borrow assets from owners through a digital clearinghouse. It empowers the utilization of unused capacity while allowing consumers to do business with their peers rather than with a company.

Jeremiah Owyang is an analyst at Crowd Companies, which advises companies on the sharing economy. He said the deal will provide a wider platform for global growth of the sharing economy.

"We've seen incredible investments over the last few years, which were primarily funded to fuel international expansion and market growth. Now, markets where impasses like China are evident, parties can come together, consolidate, and advance the growth of the overall movement. This is the natural order of early markets," Owyang said in an email.

"You are going to need a scorecard to keep track of all the transactions likely to incur in the ride-sharing sector in the next six months," said Joseph Schwieterman, director of the Chaddick Institute for Metropolitan Development at DePaul University in Chicago.

"The enormity of China's market makes this deal of enormous importance. Uber, at least for the time being, will have to remain on the sidelines in a country where ride sharing is poised for enormous growth."

Didi owns a stake in Lyft, a US competitor to Uber. Lyft and Uber are both based in San Francisco.

"Didi already partnered with Lyft last year so that Didi's customers who are traveling to the US could access Lyft's services," said Susan Shaheen, a professor and co-director of the Transportation Sustainability Research Center at the University of California Berkeley.

"Didi could continue to use that strategy with Uber abroad to gain exposure to the international market before more aggressive expansion," she said. "But we don't believe that Didi or Uber have made any official statement on plans to do that."

Gerrit Schneemann of consulting firm IHS said that the strategies going forward will be interesting to watch. "The problem is more immediate for Lyft as Uber can now focus on the competition in the US. Maybe this will accelerate an exit for Lyft via acquisition by GM, for example," he said.

Wang Xiaofeng, an analyst at Forrester Research Inc, said the main reason behind the merger was to cut costs in the battle between the companies for leadership of China's fast-growing ride-hailing market.

Zhang Xu of Analysys International said the merger will mean that smaller players in China's internet-enabled chauffeur service market will soon feel the pinch.

"The combined market share of Didi and Uber in China's chauffeur service is more than 80 percent. Their dominant position will bring more competition to smaller players and force them to improve the quality of service to gain user loyalty," he said.

"Didi is the world's largest sharing economy platform and poised to dominate the South Asian market. Its relationship with Uber provides global reach," said Sundararajan.

paulwelitzkin@chinadailyusa.com

Meng Jing contributed to this story.