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Uber isn’t losing $1 billion a year in China. It’s “investing” $1 billion a year in China.

By Clay Dillow
March 28, 2016

In February, Uber CEO Travis Kalanick admitted the ride-hailing app is losing some $1 billion a year battling for market share in a fiercely competitive Chinese marketplace. But speaking on the sidelines of a conference in China, Kalanick said the company’s China operations will see profits in just two years.

With “hundreds” of cities crossing the threshold to profitability for the company over the past six months, Uber can afford to invest heavily in its China operations, Kalanick said. “If you are focused on profits right out of the gate, you’re gonna have the smallest profitable business that has ever been seen,” he told CNBC.

Uber now operates in 400 cities worldwide and is generating $1 billion in profit from its top 30 cities globally, Kalanick said. Valued at more than $62 billion, the company’s U.S. operations now turn a profit, he said. But its Chinese operations are a different story. Local rivals like Didi Kuaidi—itself valued at $16.5 billion with backing from Chinese behemoths like Tencent and Alibaba baba —have kept pace with Uber’s investment in the country (Uber’s China business is valued at around $8 billion based on its latest funding round in January).

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Kalanick refers to the company’s $1 billion annual expense in China as an “investment” rather than a loss. “If you took our top 30 cities today, today they’re generating over $1 billion in profit a year, just our top 30 cities. And that profit multiplies every year because we’re growing,” he told Reuters on Friday. There are other cities outside that top 30 that are also profitable, he added, and those profits allow Uber to confidently invest in loss-makers like Chinese cities in order to establish market share there.

For now, the investment seems to be paying off. At the beginning of last year Uber held between 1% and 2% market share in China. Today that’s up to about 30%, Kalanick said, although Didi Kuaidi disputes that assertion and, quoting an analyst report, says the real number is only about half that.

The company has made expansion there a top global priority—one worth throwing billions of dollars after—though the move has rallied its fair share of skeptics. China has proved a particularly tough environment for foreign Internet companies, which tend to encounter both cultural and regulatory headwinds. Uber’s reputation for somewhat assertive—some might say brash—tactics could put it at loggerheads with Chinese authorities.

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Nonetheless, Uber recently brought its service to 18 new cities across China, for a total footprint there of more than 50 cities. By year’s end, Kalanick has said Uber will be operating in 100 cities across China—not as many as Didi Kuaidi’s roughly 200, but enough to continue claiming significant market share.

“I’m not yet sure how much…investment will take to get to profitability in China, but I’m optimistic that within the next couple of years we’re going to start seeing Chinese cities start to prop up and be profitable,” Kalanick told CNBC.

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