The Guangzhou government is officially launching its own taxi-hailing / ride-sharing app. The service is called Ruyue and it will be a direct competitor to Uber.

That is really, really bad for Uber.

• The local government will both make the rules and directly compete.The Guangzhou government is going to be both policeman and player.
• They already own all the local taxis and taxi hailing is the only big market today. A reported 2,900 taxis have already signed up for Ruyue.
• This is the same Guangzhou government that raided Uber’s office a few weeks ago. They reportedly seized thousands of iPhones during the raid.

But to be honest, Uber was already in dire straits in China. They are in only +10 cities while their competitors Kuaidi-Didi (backed by Alibaba and Tencent) are in +350. To put that in perspective. Kuaidi-Didi are bigger in China than Uber is globally.

So this is mostly a problem for Kuaidi-Didi. They won in the marketplace but might now have lost China’s third largest city in one day.

And this somewhat proves the point of my previous post (How to Save Uber China). I argued that Uber’s best (only?) strategy now is to partner with local governments or taxi SOEs. They have lost decisively in the marketplace. So they should partner with SOEs and help them become competitors to Kuaidi-Didi. Be the technical or JV partner in lots of cities.

And this is what Kuaidi-Didi really don’t want: the emergence of SOE competitors with top tier technical ability. In China, a local government monopoly trumps a powerful competitive advantage every time.

But this does require a technical partner and that is the opening for Uber. I guarantee you, the Guangzhou Traffic Committee is not developing the app in-house. There is a local private company acting as their developer and probably operator. Watch for that company to start rapidly appearing in other Chinese cities – doing what Uber should start doing ASAP.