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Didi investment may help Apple mend relationships with the Chinese government

Betting on China's homegrown player over the foreign import may have been a deliberate move on Apple's part.

Apple Introduces New Products Photo by Justin Sullivan/Getty Images

Apple's $1 billion investment in homegrown Chinese ride-hail player and Uber's biggest competitor Didi Chuxing comes weeks after the Chinese government shut down iTunes in the country, causing investors like Carl Icahn to sell his shares.

The hardware giant has had long-standing troubles with China, where most of Apple's manufacturing is based. The Didi investment — which company president Jean Liu told reporters came together in just three weeks — may help Apple mend some of those fences.

Shutting down iTunes and iBooks was a signal to Apple: If the company's relationship with the Chinese government continues to sour, the government could make it more difficult for Apple to operate in the world's largest consumer market. So investing in the homegrown player rather than the foreign import (Uber) may have been a deliberate move on Apple's part.

Didi works well with the Chinese government. From the outset it only operated fully-licensed taxis. But once the company began offering e-hailing for taxis and private cars, the government ruled e-hailing illegal, claiming the technology was putting taxi companies out of business.

To alleviate those issues, Didi worked closely with taxi companies, allowing them to use the company's technology platform to offer e-hailing and enhance Didi's mapping and routing systems. More recently, the company forged a revenue share partnership with Shanghai taxi company Haibo. In effect, Didi is attempting to show in good faith that the company is not attempting to quash competing industries and companies.

Today, Didi is profitable in 200 out of 400 cities in which it operates and holds 99 percent of the taxi-hailing market, according to company vice president Stephen Zhu.

Working with taxi companies also helps address some of the government's congestion concerns, according to Zhu. In Beijing, for example, 60 percent to 70 percent of the population owns a car, and the government had to restrict which days cars can be driven. The government also levies a 100 percent tax on imported vehicles to discourage car ownership.

By partnering with taxi companies that already have a fleet of vehicles, Didi is helping both potential drivers who can't afford to own their own cars and consumers looking for an upgrade from public transportation, all without adding to the existing fleet of vehicles on the road.

According to Zhu, China is one of the few places where taking taxis is cheaper than owning a car, given the high costs of car ownership.

"By leveraging big data and our technology, we believe with one million taxis we can serve 1.3 billion people," Zhu told Recode in an interview earlier this month. "So taxis are a great alternative for transit networks and to displace car ownership."

Uber and Didi's claims that they help cut down on congestion should be taken with a grain of salt — both companies are fighting for a bigger piece of the market, and appealing to regulators is a crucial part of that. For Didi, working with an existing fleet of taxis initially made it easier to gain market share; now it helps the company to stay on good terms with the government.

For Apple, beyond aligning itself with a homegrown player actively working to stay on good terms with the Chinese government, it certainly helps that Didi is the market leader in the country.

Apple's investment — the exact amount that Uber CEO Travis Kalanick said the company is losing in China — will certainly help Didi maintain and increase any advantages it may have. Also, like Uber (and reportedly Apple), Didi has ambitions to create a network of self-driving cars, Liu told reporters on a call Thursday night. Through the investment, the company is also forging relationships with Didi investors like Ali Baba and Tencent, as well as Didi's partners and investments around the world like Ola, Lyft and Grab.

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