China has drafted a plan to ban the use of private cars in online taxi-hailing services, potentially dealing a setback to Didi Kuaidi (滴滴快的) and rival Uber in their efforts to expand in the world’s most populous nation.
Operators would need to obtain licenses from transport authorities to provide online ride-booking services as well as local offices and China-based servers, under proposed rules by the Chinese Ministry of Transport. The cars being used should be GPS-enabled registered taxis and drivers need to pass qualification tests, according to the draft posted on Saturday on the ministry’s Web site seeking public comment.
The plan challenges the companies’ current business model of signing up owners of private cars and matching them with riders.
“If it takes effect, it will be a devastating blow to the industry,” said Zhang Xu (張旭), a Beijing-based analyst at market-research firm Analysys International (易觀國際).
“Ride-hailing operators would need to pay high costs to retain existing private-car drivers, and they may not manage to keep drivers in the end,” he added.
China is considering regulations that would force ride-booking apps, such as Didi Kuaidi — the top car-hailing company in the nation — and Uber, to use commercially registered cars and drivers, and would let city governments limit permits for those services, people familiar with the plan said last month.
Uber and Didi Kuaidi, both of which have raised billions of US dollars from investors by pitching rapid expansion in China, have spent heavily on subsidies for drivers and consumers to build a following.
Despite being loaded with cash and armed with plans to expand into dozens of cities, the companies continue to operate in an ill-defined area when it comes to enabling privately owned cars to provide paid transportation, a service traditionally confined to licensed taxis and rental companies.
Some operators used subsidies to gain market share and hired private cars in their services since March this year, “disrupting the normal market order and affecting the taxi industry and social stability,” the ministry said in a statement, without naming any.
In a move that could cloud the issue even further, Shanghai has given Didi Kuaidi a license to book privately registered cars for trips, the Chinese company said last week.
While Shanghai’s policy governing Internet-based services would still be subject to the nationwide guidance, the blessing by China’s commercial hub, a traditional testbed for economic policies, could prompt other cities to follow suit.
The nation’s 1.4 million traditional cabs are facing “unfair competition” from online ride-booking companies, the ministry said in a separate statement.
Such companies are encouraged to upgrade their services using mobile-Internet technologies, while cars used by online operators would be barred from roaming the streets to collect passengers, it said.
Uber China would comply with all requirements in the draft regulations and is in close communication with local regulators, the company said on Saturday in an e-mail.
China Auto Rental Inc (神州租車) welcomed the rules, saying in a statement that its services have been in line with government guidance.
Drivers cannot sign up with two or more online operators at the same time, according to the draft. In cities with limits on the number of such cars, authorities would manage the granting of licenses, the ministry said.
Operators of online car-hailing services should not have dominant positions in local markets and cannot set prices below cost to undermine competitors, the draft states.
The growing use of such apps in China has also made taxi hailing more difficult for those who do not use them because some taxi drivers sometimes rely only on online orders, the ministry said.
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