52 Business The Economist February 20th 2021
fifth of that in its American opposite num-
ber, Los Angeles. China’s extensive high-
speed rail network, the world’s longest,
blunts the benefits of car ownership for
long-distance travel. And cheaper labour
means rides can be offered at low prices,
making them accessible to a wider group of
customers. More than 340m Chinese book-
ed a ride-hailing service at least once in the
first half of 2020, notes the Ministry of In-
dustry and Information Technology.
In 2019 Didi disclosed that it was losing
an average of just 2% of the total fare on
each ride. The company now says its “core
ride-hailing business in China is already
profitable”. It is coy about the details; Uber
also insists it makes money from ride-hail-
ing but continues to report vast operating
losses, of $4.9bn last year. Yet most analy-
sts in China take Didi at its word. The ques-
tion for Didi, they say, is not whether it can
break even but rather how well it can sus-
tain profits, maintain its near-monopoly
in China and expand abroad.
In recent years the firm has expanded
into new business lines, from bike-sharing
and food delivery to financial services. The
aim is to build up a convenient “ecosys-
tem” to make it costlier for customers to
switch to a rival platform. Those rival plat-
forms are not standing still, however. Jack
Wei, boss of Shouqi Yueche, Didi’s closest
domestic competitor, is sanguine about
the challengers’ prospects. He sees room
for “multiple firms”, perhaps three or four,
to thrive in China in the long term.
One way to carve out a bigger slice of the
market is through differentiation, Mr Wei
suggests. Shouqi prides itself on premium
customer service (as Lyft, Uber’s domestic
rival, tries to). Its ambition is to become
the “leader” in upscale rides while “keep-
ing up” with Didi in the mass market. Chi-
na is large enough that serving this niche is
big business. Shouqi expects to turn a net
profit this year on revenues of 8bn yuan.
Another path is to forge strategic alli-
ances. Shouqi has one with Meituan, a ris-
ing Chinese e-commerce star that offers,
among other things, food-delivery and
bike-sharing services. The agreement al-
lows Meituan’s 477m annual active users
to book Shouqi rides directly in its super-
app. In return Shouqi pays Meituan a small
commission on each booking. Crucially,
Meituan excludes Didi, which it views as a
threat, from its platform.
Despite its advantages, the Chinese
market presents some obstacles. As in the
West, the authorities are concerned about
big tech. In December the markets regula-
tor summoned six online giants, including
Didi, and lectured them on how not to
abuse their dominant positions. At the lo-
cal level, more than a hundred municipal-
ities have drafted stricter rules on who can
drive for ride-hailing firms over the past
four years. The aim appears to be to ap-pease embattled local taxi industries. The
rules typically set a high bar, such as re-
quiring existing residency status in the
city where a driver wants to work. Yet most
drivers are migrant workers who lack the
proper papers. In 2016 Didi complained
that only 3% of its 410,000 drivers in
Shanghai would have passed the test.
The arrival of self-driving cars, which
Didi has been developing since 2016, may
one day solve this problem, though proba-bly not imminently (last year Uber called it
quits and spun off its autonomous-vehicle
arm). In the meantime, Didi is hedging its
bets by diversifying. In 2017 it set up an in-
ternational division. A chunk of the $4.5bn
it raised a year later was earmarked for for-
eign expansion. Today it operates in 13
overseas markets, mainly in Latin Ameri-
ca. Three years ago it acquired a control-
ling stake in 99 Taxi, which competes with
Uber in Brazil, in a deal that valued the Bra-
zilian startup at around $1bn.
But China remains the biggest opportu-
nity, which explains why Shouqi has cho-
sen to lock in on its home market for the
time being. It helps that local authorities
have, for the most part, turned a blind eye
to rule-bending by the ride-hailing firms.
Perhaps they calculate that unemployment
resulting from tougher enforcement im-
perils social stability, not least as econom-
ic growth slows and good manufacturing
jobs are harder to come by. One in eight
drivers for Didi in China are military veter-
ans, a group known for staging small-scale
protests when their interests are harmed.
Given Beijing’s harmony-obsessed leaders,
it is a good bet that ride-hailing in China
has plenty of road left to run. Yuan for the road
China, Shanghai, passenger-car licence plates
Average auction winning bid, yuan ’000Source: SICA100806040200
2011 2119171513IntelHard reboot
“S
uccess breedscomplacency. Com-
placency breeds failure. Only the par-
anoid survive.” So said Andy Grove, the
Hungarian emigré who helped turn Intel
from a scrappy startup in the 1960s into the
firm that did more than any other to put
the “silicon” in Silicon Valley. They will be
ringing in the ears of Pat Gelsinger, Intel’s
new boss, who took over on February 15th.He takes the helm of a company that looks,
from some angles, to be in rude health.
With $78bn in revenue in 2020, it is the
world’s biggest chipmaker by sales. It has a
93% share of the market for powerful—and
lucrative—chips that go into data-centre
computers, an 81% share in desktop pcs,
and operating margins of around 30%.
Yet Intel’s share price has underper-
formed those of rivals. Nvidia, a firm with
one-seventh of Intel’s revenues, has a mar-
ket capitalisation, at $370bn, that is half as
high again (see chart). The manufacturing
technology on which much of Intel’s suc-
cess was built has fallen behind. It has mis-
sed the smartphone revolution. Some of its
big customers, such as Apple and Amazon,
are turning into competitors. Mr Gelsinger
inherits quite the in-tray, then.
Start with production. Chipmaking is
propelled by the quest for smallness.
Shrinking the components in integrated
circuits, these days to tens of nanometres
(billionths of a metre), improves the per-
formance of both the components and the
microchip as a whole. For decades Intel led
the way, its “tick-tock” strategy promisingCan Pat Gelsinger turn the chipmaking giant around?When the chips are down
Selected semiconductor firms
Market capitalisation, $bnSource: Refinitiv Datastream600
500
400
300
200
100
0
2000 05 10 15 21AMDIntelNvidiaTSMC