HONG KONG  - Short-term lodging giant Airbnb faces stiff competition and regulatory risk in China, but that doesn’t mean it should cash out and run like Uber did. A strategic alliance with local unicorn Tujia or Xiaozhu could help it cash in on the travel boom in the People’s Republic. It might also avoid a long-term headache; Didi Chuxing, the Chinese rival Uber sold out to, now competes with Uber overseas.

The $31 billion shared economy giant shows no signs of leaving China; in July it invested $5 million in a Beijing property management startup. It says mainland listings grew over 125 percent in 2017, with upwards of 120,000 flats available. The regional strategy seems to be working. Euromonitor says Airbnb generated $1.8 billion in retail value RSP – a common tourism industry sales metric - in the Asia Pacific in 2017.

Founder Brian Chesky has played particularly nice in China, sharing host information with the government, and suspending listings ahead of sensitive political meetings. His company faces rising local competition nevertheless. Tujia, for example, is valued at over $1.5 billion after raising $300 million last year, and claims 1 million listings. It is backed by Ctrip , China’s largest online travel agency. Xiaozhu, a down-market rival, has a strategic partnership with Alibaba . Euromonitor data shows Airbnb held only 8.7 percent of the China market in 2017, compared to 41 percent for Tujia and 23 percent for Xiaozhu.

Bloomberg reported that Airbnb pulled out of merger talks with Tujia in January 2017, opting to take its smaller competitor head on. Chesky does have less cause to panic than Uber CEO Travis Kalanick did; he admitted to burning over $1 billion a year in China before giving up. Airbnb, on the other hand, expects to lose a manageable $20 million from its China business this year, website The Information reported.

Even so, this battle is getting expensive, as big -pocketed players like Tencent-backed Meituan Dianping pile into home-sharing. Sudden clampdowns by municipal governments are one risk, as are trade-war-motivated boycotts against U.S. companies.

Partnering with Tujia, or its big brother Ctrip, might be shrewd. Doing so could help Airbnb better tap outbound Chinese tourist flows, which reached 130 million trips in 2017 according to Ctrip and the China National Tourism Administration, and provide more political cover. It might be time to reconsider those merger talks.

On Twitter https://twitter.com/sharonlamhk 

CONTEXT NEWS

- The short-term rental market in China grew 40 percent in 2017, according to research outfit Euromonitor, compared to 3 percent for hotels.

- There have been over 10 million guest arrivals by Chinese travellers in Airbnb listings around the world since the company was founded in 2008, over half of which were in the last year, according to a Airbnb press release.

- The number of outbound trips from China reached 130 million in 2017, up 7 percent from the previous year, according to a joint study conducted by online travel booking site Ctrip and the China National Tourism Administration.

- A promotional competition organised by Airbnb, which offered winners the opportunity to camp out overnight on the Great Wall of China, was cancelled after the Yanqing District cultural commission said on Aug. 6 it had neither received nor approved any application from the company, Reuters reported.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Pete Sweeney and Katrina Hamlin)

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