MOFCOM's ruling to have far-reaching impact
A proposed merger between China's Didi Chuxing and US-based Uber Technology Inc's China unit is facing many uncertainties, after the Chinese government said it's probing the case for possible violations of Chinese laws, including those against monopoly practices, analysts said on Sunday.
The Ministry of Commerce (MOFCOM) announced the investigation Friday, saying it had not received any filings from the companies on the proposed merger. It said it had also received complaints regarding the companies' failure to notify the authorities of the proposed transaction.
Details on the case remain sketchy, including why Didi did not file a report with the ministry, and how the MOFCOM decided to investigate the merger, according to Chen Danzhou, an assistant professor at the University of International Business and Economics in Beijing.
Though there are specific requirements for companies to notify the authorities, there is no uniform way of calculating turnover (a condition of China's laws on mergers), especially with new business models like that of Didi and Uber, Chen told the Global Times on Sunday.
Also, the authorities have a certain flexibility in deciding if they want to investigate a merger case, he said. "There is a lot we don't know, so (the deal) raises many possibilities."
One possibility is that the MOFCOM could deem the merger is in violation of anti-monopoly laws and send the proposed deal back for revision or impose penalties. Another possibility is that the MOFCOM could say the merger is not in violation of any law and let it move forward, according to Chen.
But the first possibility is more likely, because if the MOFCOM "brought such a case, I think it is quite sure of what it is going to do," Chen said.
Nonetheless, any ruling from the MOFCOM on the merger, whether it's an approval stamp or otherwise, would have broad implications on the car-hailing industry and the whole Internet sector, analysts said.
If the proposed merger is blocked, the car-hailing industry will remain in its current condition and Didi and Uber will compete fiercely again for market share. Competition of that sort, which sometimes focuses on lowering prices, is not healthy for the industry, said Liu Dingding, a Beijing-based analyst specializing in the car-hailing industry.
An even larger implication might involve the whole Internet sector, according to Liu. "If the Didi-Uber China merger is violating anti-monopoly laws, then how about Baidu? How about Tencent? How about Alibaba? They are all dominating their respective markets and continue to expand through mergers and acquisitions," he told the Global Times.
Therefore, this case could be seen as an indication of how authorities "will treat the new sharing economy in the future, and some reforms are needed in this regard," Liu noted.
In the long run, "things will return to normal, because, even after the merger, Didi will still face competition," Liu said.