"We want to make sure that Uber China is authentically and thoroughly Chinese, a real Chinese company."

BATTLING CHINESE RIVAL DIDI KUADI

Uber's move to localise its China operations comes as the company is locked in a series of regulatory battles across the country. It is also facing fierce opposition from millions of taxi drivers, negative ad campaigns from smaller rivals and tough competition from the biggest domestic player Didi Kuadi.

While Uber took almost two months to raise $US1.2 billion, Didi Kuadi tapped investors for twice as much over just a two-week period in July and has reportedly gone on to raise a total of $US3 billion. It is well-funded and has powerful connections, backed by internet giants Tencent and Alibaba as well as sovereign wealth fund, China Investment Corp.

Like Uber, Didi Kuadi offers a ride-hailing app but it also uses taxi drivers and private drivers, a strategy it claims gives the company an 80 per cent share of the market. Uber China, which has a share of 30 to 35 per cent, according to Kalanick, is valued at an estimated $US7 billion based on the latest raising, while Didi Kuadi is said to be worth $US15 billion.

Both Uber and Didi Kuadi face regulatory uncertainty. China's central government is mulling special guidelines for the industry while in the meantime local governments are ruling on their own legal frameworks for the companies, with widely differing outcomes. Shanghai is setting up a pilot set of rules for how it might work while Shenzhen decided Tuesday, last week, that it was illegal for private drivers to use car-hailing apps to arrange rides.

Apart from the evolving regulations, Uber has its own challenges as the big foreign player in a very competitive and fast-growing domestic market.

Didi Kuadi backer Tencent has effectively blocked Uber from using the popular messaging app WeChat, which has over 600 million users. At the same time, China's government keeps throwing money at Uber's competitors, with CIC investing not only in Didi Kuadi but also in South-east Asian ride-hailing startup GrabTaxi.


Meanwhile, just across the border in Hong Kong, police arrested several of Uber's drivers last month for operating without a hire-car permit or proper insurance. Hong Kong is now considering what legal framework, if any, Uber can operate under.

HISTORY OF BACKING LOCAL RIVALS

While Uber is facing regulatory challenges around the world, China has a history of targeting big foreign companies which are expanding at the expense of domestic rivals. That's why the company has sought out strategic local investors. In an interview with Chinese web site Sina, Kalanick hinted the local arm's future investors may include some state-owned companies.

And on Tuesday he stressed the importance of the relationship with Baidu in helping the company engage with city governments.

Kalanick explained his approach to Caixin in June. "We're looking for strategic investors that can help guide us to become Chinese, help us build our management team, interact with regulators and the government and get more customers and drivers," he told the magazine.

Uber is not the only global internet company to approach China this way. Professional networking site LinkedIn teamed up with venture capital firms Sequoia and China Broadband Capital last year to set up a local web site. More recently, Airbnb chose the same partners, Sequoia and CBC, to advise on its China strategy as the apartment-sharing web site looks to expand more aggressively into the market.

"This is part of a growing trend for international internet companies to let go of traditional control when it comes to China," says Ben Qiu, an associate at American law firm Cooley."They are saying China's different so we will do it differently."

Qiu says companies like Uber, LinkedIn and Airbnb are trying to avoid the same fate as eBay or Yahoo, which both failed to gain any traction in China and were eventually muscled out by local competitors. Even global powerhouse Amazon has struggled in China.


Uber hasn't outlined exactly how its China unit will operate or what share local partners have in the business. A spokeswoman declined to comment for this article.

100 NEW CITIES IN 12 MONTHS

No chief executive of China has been appointed at this stage with the company opting to have general managers in each city where it operates – currently almost 20 cities and aiming to grow to beyond 100 within 12 months – who then report to Uber's head of Asia. Kalanick has said he will have a hands-on role in the China expansion.

While giving few details about how the local unit will work, Kalanick has been upfront that he sees China as the group's biggest growth opportunity, describing it as "potentially larger than the US" in a recent letter to investors.

Within nine months, in cities like Chengdu in the country's west and Hangzhou on the east coast, Uber was growing at more than 400 times the pace it did in New York over the same period.

Still, Huang Shaoqing, an economics professor at Shanghai's Jiaotong University, says Uber must tread carefully in China.

He was asked by one of the company's management team in East China for his input on Uber's local strategy and he advised a more specialist approach.

"I suggested Uber focus on the high-end market," he says. "That way it won't upset traditional taxi drivers."


Huang believes taxi driver protests are a significant threat to Uber's viability in China, as there are more than three million drivers in the country and the government won't tolerate any ramp-up in social unrest as a result of Uber's entry to the market. When this number is extended to include unhappy family members, it could grow to more than 10 million, he points out. Uber claims the opposition is overstated and people have been paid to attend protests.

"Uber is trying to develop China's market, but it moves slowly to understand and get used to the regulatory environment," says Huang. "It will do Uber no good, at all, if its strategy brings troubles to Chinese government officials."

Cooley's Qiu says while Uber is an "easy target" because it is a foreign brand, working in its favour is the jobs it's creating at a time when the economy is slowing down markedly from the double-digit growth rates of the last three decades.

"The sharing economy helps the government fight its unemployment challenge," he says.