Economy, Talking Point

Driving reforms

Why debates on taxi deregulation have gained nationwide attention

Drivers w

Flying pickets: cabbies in Nanjing surround a driver who has declined to join their strike

It was King Charles I who launched the world’s first taxi service in 1638. Royal permission was given for 50 hackney carriages to “ply for trade” in London, although they were prevented from carrying passengers on trips of less than three miles.

In 1833 restrictions on the number of hackney carriages were removed and the cab fleet kept expanding until London’s Great Exhibition of 1851. Dismayed by complaints from visitors that drivers didn’t know where they were going, a stern police commissioner decided that it was better to regulate after all. A strict topographical test – The Knowledge – was introduced to make sure that cabbies were experts on the capital’s addresses.

The Knowledge has since acquired a reputation as the world’s most difficult driving test, making London’s taxi drivers almost as famous as the iconic black cabs that they drive.

But the 165-year system is now being threatened by technology – such as the advent of satellite navigation and Google Maps. Hailing apps such as Uber, which allow freelance drivers with smartphones to link up with passengers, are also threatening to force black cabs off the roads. In June last year more than 12,000 London cabbies went on strike in protest against the boom in unlicenced cabs.

Transport regulators in China, too, are embroiled in a heated debate about whether to deregulate the taxi industry. Meanwhile protests by cab drivers have threatened to paralyse major Chinese cities.

How disruptive are the Chinese taxi strikes?

Media reports on the taxi strikes are being censored on a sporadic basis and the scale of work stoppages is difficult to establish. What is known, however, is that protests by cab drivers have been growing across a numbe of major cities this month. Guangcha, a portal for independent news commentators, has even described the protests as the “biggest labour strike ever in the transport industry”.

The first stoppage was reported in Shenyang, the capital city of Liaoning province, earlier this month (see WiC265), with the Global Times admitting that “thousands of taxi drivers” refused to take passengers in a one-day protest at “illegal vehicles using car-hiring apps”.

Other cab drivers staged their own protests. Hong Kong’s Oriental Daily reported this week that at least 10 cities from nine provinces had seen stoppages and that the industrial action was threatening to sprawl into an unprecedented nationwide campaign.

The biggest demonstration so far happened in Shandong’s Jinan, where more than 70% of the city’s 10,000 licenced cab drivers protested for two consecutive days. There were reports that some drivers refusing to take part in the stoppage were assaulted, although local authorities later claimed that police had arrested those involved in these violent acts and that most cabs were back on the roads by January 15.

But discontent spread. About 8,000 taxis in Changchun were parked in protest, as their drivers demonstrated outside the offices of the city government.

In Chengdu and Wuxi, photos from weibo accounts show angry drivers parking their vehicles in long lines in an attempt to block traffic. Riot police were called in as a precaution.

Local governments in top-tier cities such as Beijing, Shanghai and Shenzhen seem to have prevented similar disruption by announcing conciliatory measures to crack down on “illegal taxis” supported by online booking services.

However, government bosses are under mounting pressure from internet firms and consumers to make room for hailing apps in China’s biggest taxi markets.

Why the road rage?

News about the increasing threat from online hailing services seems to have prompted many of the strikes. Following Baidu’s $600 million investment in Uber (reportedly for a 1.5% stake) last month, each of the country’s top three internet firms is positioned to compete in the cab trade. Tencent and Alibaba have invested heavily in their own taxi booking services, Didi Dache and Kuaidi Dache respectively (see WiC226).

Taxi-hailing apps are the latest in a long list of grievances for the licenced drivers, some of whom are being described in the media as modern-day “camel lads” ­– a reference to the overworked and underpaid lead character in Rickshaw Boy, a novel by Lao She that’s considered a twentieth century literary classic.

Taxi markets in most cities are dominated by a handful of firms, typically state-owned enterprises under the local government. As a result, new competitors are rare. In Beijing, for instance, two companies control about 66,000 officially licenced taxis. In spite of Beijing’s tremendous population growth over the past two decades, these companies have only upped taxi numbers by 10% since 1994.

(Only 1,157 Beijing taxis are operated by private individuals, mostly on licences granted before 1994.)

Supply-and-demand basics suggest that this should be a good situation for the drivers. But they are also required to pay monthly franchise fees to work for these local monopolies. Drivers in Beijing and Guangzhou pay about Rmb5,000 ($815) a month, for instance, although fees for newer and larger vehicles can cost Rmb9,000. And while these fees have been going up, fare levels have not kept pace. Because drivers have to take care of expenses like repairs and fuel, monthly incomes can be pitiful. Many “camel lads” work for 14 hours most days and the first eight hours of earnings go to their taxi companies, one driver told Xinhua.

“I get up before 6am every morning and sit for about 14 hours a day, only to get Rmb2,000 a month. That’s unbearable,” another driver from Nanjing told the China Daily.

Private car owners working with hailing app Didi Dache give 20% of each ride’s fare to the internet firm but can earn as much as Rmb5,000 a month by working only three to five hours a day, according to reports in Beijing Youth Daily.

Of course, the new competition from the car-booking services means that the incomes of the licenced cab drivers are being further squeezed. Hence the slew of street protests. Mind you, Guangzhou Daily suggests that while the apps were the catalyst, the taxi drivers’ collective frustrations have been brewing for a while. Aside from the franchise fee issue, they gripe about fines from overzealous traffic cops, and fuel costs.

Is the public sympathetic?

In rows of this type, the general public usually stands with the protesters against local officialdom. But in the current case there is little sign of the drivers getting much wider support. Mostly that’s due to the poor service on offer in many cities. With such limited supply, hailing a cab in peak hours can prove a dreadful experience. Beijing was even voted the world’s second-worst spot for taxi services last year (trailing only Moscow) by 54,000 TripAdvisor travellers.

“Striking taxi drivers should look in the mirror,” a guest columnist told Century Weekly this month. “They often snub customers or force passengers to share a journey with a stranger so that the driver can make extra money. Walking out on the job does them no good because it just alienates their customers even more.”

But the local monopolies that control the cab trade are getting a bad press too. “The present system was designed to regulate the number of vehicles on the road. It has now evolved into an exclusive profit chain between local governments and taxi companies,” Nanfang Daily complained.

Beijing News also weighed in: “Drivers make more money with the hailing apps. Passengers get a cab more easily. It is a win-win situation. Why not?”

Surprisingly it was some of the leading voices from the official media that led the charge against vested interests in the industry, including the People’s Daily, which insisted that it was time to “break up the profiteering taxi monopolies” after the unrest in Shenyang. It followed up with two further commentaries over the next two days, as well as nine articles on its weibo platform calling for a reform.

The Xinhua news agency also published articles suggesting that Uber-like hailing apps are the “optimal tool” for regulators to make the taxi market more efficient.

“Not only does high-end car-hailing supply fall short of demand, the basic travelling needs of Chinese people are not being met,” a researcher told Xinhua. “The government should be more welcoming to internet innovation. This could be a lever to force the irrational taxi management system to change.”

And it’s not only about taxis?

Obviously the taxi market isn’t the only sector to be dominated by state entities. But the national attention currently being given to the issue suggests something bigger is at stake. The rise of China’s internet giants has long been viewed as a key plank in the transformation of the wider economy. Thus when Alibaba and Tencent began buying companies in a variety of industries last year, official media hailed the duo as the “epitome of the private sector” and compared them to “a sword to break down resistance against reforms” (see WiC230). Some see the unrest in the taxi industry as merely the first skirmish in a broader battle – one that’s centred on the internet’s transformational power. They think internet firms can be used to dislodge cosy vested interests and make the economy more responsive to market forces. “Strikes by taxi drivers are in fact a protest against government-approved monopolies,” the Economic Observer has suggested. “The reform in the taxi market will be highly indicative of how local governments implement the central government’s other reform initiatives.”

“The first gunshot on resistive force to reforms has been fired, and this first gunshot is awesome,” Xinhua agrees.

The broader question is how the disruptive impact of new business models is going to be felt in other sectors of the Chinese economy. Don’t be surprised to see Tencent and Alibaba pick further fights with long-protected rivals in other industries too. For example, earlier this month the bosses at Alibaba’s online payment system reignited their duel with UnionPay, China’s domestic bank card monopolist, over its dominance of offline payment systems, reports The Paper.

Similarly, executives at the state banks are probably getting jittery too. During a visit to Shenzhen this month, Chinese Premier Li Keqiang officiated at the opening ceremony of Tencent’s WeBank. Pushing the button that approved the internet bank’s first loan, Li called it a transformative moment, invoking comparisons with Neil Armstrong’s moonwalk in 1969.

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