Local Regulations Slam a Brake on China’s Ride-Hailing Services

Joyce Huang & William Ide, VOA News
12 October 2016 (7:05AM)

BEIJING — The boom years of China's ride-hailing app industry may come to a sudden halt next month, now that city governments have shifted gears and rolled out new and stringent regulations that analysts say will seriously stifle growth.

China formally legalized online ride-hailing services in late July after its Ministry of Transport introduced provisional governing rules, which San Francisco-based Uber said showed “support for ride sharing and the benefits that it offers riders, drivers and cities.”

Uber also praised China as the world’s first country to be “forward-thinking when it comes to business innovation.”

The rules, slated to take effect in November, gave an immediate boost to an industry that was operating in a grey area.

But that boost now appears to be short-lived.

Stringent local regulations

Since Saturday, local governments from Beijing to Chongqing have unveiled their draft regulations, ensuring drivers of online ride-hailing platforms and their private cars be locally registered.

In megacities like Beijing and Shanghai, such drivers are required to have permanent household registration, or hukou, while those in other cities like Shenzhen and Hangzhou are required to own a temporary residence.

And the minimum requirement for the vehicles, which work with the apps, must be locally registered sedans with larger-than-average interior space — entry barriers which Didi Chuxing, the largest operator in China, said “will result in exclusion of large quantities of vehicles but for the higher-end, Audi 4L-level car models way above the cost range of taxi cabs.”

All in all, the restrictions are as stringent as those for taxi operators and may wipe out most online ride-hailing services, said Zhao Zhanling, a researcher at the Intellectual Property Center of China University of Political Science and Law.

“The sole threshold of the [vehicle’s] wheelbase width and swept volume can wipe out some 80 to 90 percent of [private] cars [in operation on online platforms]. Those remain in service will be insufficient to meet the demand of potential riders,” Zhao said, adding that local regulators still treat new ride-hailing start-ups as traditional cab operators.

Wipe-out

According to Didi, less than 10,000 of its 410,000 drivers in Shanghai have a local hukou, while fourth fifths of its vehicles in the megacity will soon be disqualified.

In a $35 billion deal, Didi is in the process of acquiring Uber’s operations in China.

An Uber driver surnamed Chen told VOA “the way the law is set up, it will be impossible for me to stay in business.”

Chen’s home town is in Hebei province near Beijing, but he works in the capital now and moonlights as an Uber driver. He works in the evenings or whenever he has spare time. At a time when the Chinese economy is slowing and the living cost continues to rise, many like Chen are using ride-hailing apps to make ends meet. For those who have completely lost their jobs, it’s their main source of income.

Zhao also called the requirement of hukou for both private and taxi drivers “unconstitutional” and “in violation of the nation’s employment policy.”

He urges local governments to remove hukou as an entry barrier for private drivers to work with the apps — a suggestion many, including Huang Shaoqing, a professor of applied economics at Shanghai Jiaotong University, agreed with.

The professor said “[permit] tests to qualify drivers will be a more relevant entry barrier than hukou to allow private drivers to enter the market.”

“Through tests, those who better qualify for the job can stand out while the regulator can control the number of permits issued to legitimate drivers by imposing a different level of difficulty for the tests,” Huang said.

Didi, nevertheless, argued the regulations will negatively impact the convenience of urban mobility and hike up the cost of sharing rides for millions of passengers.

Founded in 2015 after merging the country’s two largest ride apps, Didi currently offers services to 300 million users across 400 cities in China. With an 87 percent market share, the company completed 143 million rides last year. Didi had previously predicted that the Chinese ride-hailing market would be worth $50 billion annually by 2020.

Setback to sharing economy

The new rules will also trigger a setback to the nation’s emerging sharing economy and gig economy as millions of families may lose incomes as part-time drivers, the company argued.

“Online ride-hailing service and mobile transportation apps are new technological creations that need an enabling, nurturing environment and market institutions,” Didi said in an emailed reply to VOA.

“We call for authorities to give local and non-local residence-holders equal rights to work, and to give our fellow citizens a more convenient, efficient and unimpeded transportation system,” it added.

Traffic congestion burden

Refuting Didi’s arguments, Huang said that China is still in full support of ride sharing and online transportation app systems.

But Didi has taken a wrong turn from ride sharing to a business model of private car rental, the latter of which should be regulated for the sake of healthy urban transportation developments, he added.

“[Didi] has used subsidizes to encourage private drivers to offer rides like cab drivers. That will maximize the use of road for passengers who could have used public transportation,” Huang said.

The traffic congestion in many Chinese cities has been too serious to afford any more burden from increasing road users, or else, a congestion charge should be levied, the professor added.

Under the new regulations, online car-booking platforms will target the higher-end market with differentiated services, which will pose less of an impact on the country’s three million lower-end taxi drivers, according to Huang.