The top two ride-hailing companies in China are expected to end their costly battle over the largest market in the world, as Didi Chuxing has agreed to acquire the China business of rival Uber Technologies Inc.

Beijing-based Didi, the dominant ride-hailing service provider in China, announced the move in a statement on Aug 1.

The deal will see the competitors become small shareholders in each other's business.

Analysts say users of the companies' apps will likely see fares rise, as the operators will no longer need to resort to heavy subsidies to woo passengers.

Uber will continue to operate independently in China. Uber Technologies and Uber China's other shareholders will receive a 20 percent economic stake in the combined company as part of the deal, according to Didi.

Cheng Wei, the founder of Didi, and Uber Chief Executive Travis Kalanick will join each other's boards.

"Didi Chuxing and Uber have learned a great deal from each other over the past two years," Cheng says. "The cooperation with Uber will see the entire mobile transportation industry in China enter a new phase of a healthier and more sustainable development."

The move came after the Chinese government legalized ride-hailing services, dispelling regulatory uncertainties over the further expansion of Didi and Uber.

Wang Xiaofeng, an analyst at Forrester Research Inc, says the main reason behind the merger is to cut costs in the battle between the companies for leadership of China's fast-growing market.

"It's only natural that passengers will find decreased subsidies when hailing rides via the apps," she adds.

Uber has spent at least $1 billion a year to gain ground in China, while Didi has been offering subsidies to drivers and riders to build its business.

Wang Siyuan, a white-collar worker in Shanghai, says she enjoys using Uber due to the convenience and good fares brought by competition. "If the fare rise is not too much after the merger, I will certainly keep using the apps," she says.

Turning foes into family has many precedents in China's fiercely competitive internet market. Didi Chuxing emerged from a merger between the top two Chinese players, Didi and Kuaidi, on Valentine's Day last year.

Zhang Xu, an analyst at Analysys International, says the merger will mean smaller players in China's internet-enabled chauffeur service market will soon feel the pinch.

"The combined market share of Didi and Uber in China's chauffeur service is more than 80 percent. Their dominant position will bring more competition to smaller players and force them to improve the quality of service to gain user loyalty," he says.

Yao Weiqun, vice-president of the Shanghai WTO Affairs Consultation Center, says that as Didi and Uber China hold dominant positions in the domestic market, the authorities will have to determine whether the merger breaks anti-monopoly regulations.

"Compared with other ride-hailing companies, the tie-up of Didi and Uber will bring even more pressure to China's traditional taxi industry," he adds.

Uber, which entered China about two years ago, handles more than 150 million rides a month. Didi says its platform handles 16 million orders a day.

Zhong Nan contributed to this story.

mengjing@chinadaily.com.cn