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Uber's Chinese rival says it must 'burn cash' to grow

Didi Kuaidi, the Chinese car-booking competitor to Uber Technologies Inc., said it had to spend money for driver incentives to build enough economies of scale to tip the business into a "virtuous circle."

"You need a sufficient operational base to have enough users -- if you only had 10 or 20 cars, you will never be able to book one," Didi Kuaidi President Jean Liu said at a forum in Hangzhou, China, on Monday, according to a transcript of the speech obtained by Bloomberg.

By achieving scale, "waiting times are shortened by a little, fares become cheaper, and because more drivers on the platform don't require subsidies, you create a virtuous circle of increased orders, customer retention."

Liu was explaining why the company was "burning cash" to chase operational scale and did not say whether the company will eventually end driver subsidies. The contents of the transcript were confirmed by Didi Kuaidi, which said it still provides subsidies to commuters and drivers and that incentive levels fluctuate.

Didi Kuaidi, formed from a merger of two competing Chinese taxi-hailing apps in February, has competed with Uber to offer incentives to attract drivers and free rides to win over commuters. The subsidies, which can reach multiple times the actual fare, also has created a cottage industry aimed at defrauding the companies of the payouts.

Drivers for Didi Kuaidi contacted by Bloomberg say the company has reduced the subsidies to drivers.

"The subsidies I get from Didi are about half of the peak in the past," said Tom Teng, who has been driving part-time for Didi for about six months. "It is pretty easy to get orders nowadays, there are so many of them."

Raising billions
Both companies have been raising funds from investors to pay for their expansion plans.

Didi Kuaidi is close to raising $3 billion (19 billion yuan) from investors, more than it had originally planned, according to people familiar with the matter. The latest round of financing values the company at $16.5 billion, according to one source who asked not to be named.

On Tuesday, Uber CEO Travis Kalanick said at the Baidu World conference in Beijing that the company now is handling 1 million rides a day in China and has created 100,000 jobs. Its market share now ranges from 30 percent to 35 percent, up from 1 percent at the start of the year.

Uber plans to add 100 more cities to the 20 that it currently operates in, Kalanick said.

Uber China has raised $1.2 billion and will continue its fundraising as more investors are interested, said Huang Xue, a Beijing-based spokeswoman. The company has attracted investors including Baidu Inc., a unit of China's Citic Group Corp. and China Life Insurance Co., people familiar with the matter said last month.

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