Internet & Tech

Roadblock ahead

New city-level proposals could stall Didi’s business plans


Being protected against Didi?

When academics in China contest the efficacy of Western democracy, they often cite the efficiency of the Chinese method for implementing reforms. But in the case of regulating online ride-hailing companies, the central government has already been through several rounds of draft proposals and now the city-level governments are taking their turn to pitch in.

On October 8, transport departments from four first-tier cities – Beijing, Shanghai, Guangzhou and Shenzhen – released provisional rules on the new industry. They were followed the next day by Hangzhou, Tianjin and Chongqing.

One typical feature of these new regulations is the prohibition of ride-hailing operators from providing the service at below-cost value: essentially a ban on driver subsidies. This should come as no surprise, since it was this provision that garnered the most attention when it was initially proposed by the central authorities. Now local governments are also trying to reduce the fleets available to the on-demand car services – most prominently Didi Chuxing – thus forcing the likely cost to customers higher still.

A proposal, made by all seven of the cities, requires cars used for ride-hailing services to have local registration plates. This could exclude many potential drivers.

The 21CN Business Herald interviewed one such driver in Beijing who had spent Rmb80,000 ($11,869) on a second-hand Ford Focus last month. The car he bought is registered outside of the Chinese capital and the proposed rules may render it ineligible. Even if the car was registered in Beijing, he would still not be able to work as a driver as he is a migrant. Another by-law proposed in Beijing demands that drivers have a local hukou (a residency permit migrants usually lack).

In a statement criticising these stringent proposals, Didi warned “millions of online ride-hailing drivers may be about to lose their jobs and pay-cheques, which would mean millions of families may lose an important income source”.

A Beijing official explained that the most pertinent reason for these rules was the need to address what it termed “city sickness”, whereby a city’s infrastructure and resources are at overcapacity: a condition often caused by overpopulation.

Mao Shoulong, a lecturer at Renmin University, told 21CN: “This provision might well have some benefits so far as controlling the population of large cities goes, but it will also contract the online-taxi industry substantially,” adding that restricting this industry’s development could place extra burdens on cities as more people turn to private car usage.

Some cities are trying to limit the types of vehicles eligible for cab-hailing services too. Guangzhou wants the cars in question to be over 4.6m in length, 1.7m in width and 1.42m in height. Other cities seek to regulate the engine size and wheelbase of the cars. The 21CN reports that in Shanghai not even a fifth of Didi Chuxing’s fleet would pass the proposed wheelbase regulation.

The purpose of these unusually strict regulations appears to be to create a differentiated service between online-booked taxis and the cities’ traditional taxis. The chief specialist on the topic at the Beijing Municipal Ministry of Transport said: “Online-booked taxis should not fight over the market with roving taxis, but should serve a higher-end market… The cost of an online-booked taxi will be about 30% to 50% higher.”

Although the provisional by-laws do not explicitly specify the cost of online taxi services, the restrictions look likely to buoy prices, leading some experts to question whether the local government has the legal right to meddle in this way. According to CBN, the quandary lies in determining what service bracket online car booking is contained in, and whose authority that falls under.

This legal consideration, combined with objections from within the industry, might prevent some of these by-laws from achieving final approval. Till then uncertainty will prevail for firms like Didi.

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