BEIJING - Beijing said Friday it had launched a probe into the merger of Chinese ride-sharing giant Didi Chuxing and the local operations of its US rival Uber, saying the deal went through without its approval.
Didi Chuxing claims almost 90 percent of the China ride-hailing market
Didi, which claims almost 90 percent of the China ride-hailing market, announced the tie-up on August 1, ending a ferocious battle for market share that saw it and Uber spending billions of dollars on subsidies for drivers passengers.
China's Ministry of Commerce said the transaction -- which gave Uber a 20 percent share in the combined $35 billion firm -- was completed the next day, without its stamp of approval.
Ministry spokesman Shen Danyang said an investigation into the deal had been opened "based on the Anti-Monopoly Law" and other rules, with Didi summoned twice and ordered to explain why it had not reported the transaction for approval.
"The case ... drew wide attention in the society and informants reported to the ministry that the trading parties involved did not declare it with the ministry for approval according to the law," Shen said in a statement.
"The Ministry of Commerce will push forward the investigation ... according to the law, to protect fair competition in the relevant market and defend the public interests of consumers and society."
The merger has sparked complaints among the firms' drivers and passengers in major cities who had been benefiting from the huge subsidies.
Earlier this year Uber said it lost $1 billion annually in China, and Didi was thought to be losing similar amounts of money.
The structure of the agreement leaves Didi in unquestioned control of the sector in the world's second-largest economy.
By shedding its losses in China, Uber will help clear its way to a future flotation, previous media reports said.
Didi argued that an anti-monopoly investigation was not applicable because it and Uber were not profitable, earlier reports said.
-- 'Negotiated solution' --
Duncan Clark, founder and chairman of Beijing-based technology consultancy BDA, said the ministry's announcement of the probe might be more of a response to address public and other ride-sharing companies' concerns than a staunch intention to block the deal.
"The Chinese government is always keen to ensure social stability. They wouldn't want to see disruption of services or major layoffs of drivers or major price hikes," he told AFP.
The two companies employ a large army of drivers, many of them laid-off personnel, he said.
"It's a very impactful factor in terms of social policy, employment, transportation," he said.
He added the Chinese anti-trust investigations "cannot be compared" with those in US or Europe "because there is a lot more cooperation going on".
"To overseas audiences...people might see it as a big red flag, but the reality is this is going to be a negotiated solution here," he said.