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A step backwards? Chinese cities’ harsh draft rules against car-hailing apps ‘hinder innovation’

China’s biggest cities have unveiled strict draft rules to regulate popular car-hailing services, sparking criticism that the proposed regulations will suffocate the booming industry and stifle innovation.

Beijing and Shanghai, for instance, would require all drivers for car-hailing services to be residents with local household registration while their vehicles must be locally registered – a threshold that would disqualify many of the present pool of drivers in these cities. Chongqing and Hangzhou are set to impose similar rigid requirements.

Should the rules come into effect, they will curtail service providers like Didi Chuxing, which beat Uber out of China, and turn an internet-based business model into an old-school urban taxi operation subjected to excessive licensing requirements, analysts say.

“The rules try to regulate the car-hailing business as taxis, and show a tendency to protect local cab firms,” said Wang Chenxi, a transport service analyst at Beijing-based research firm Analysys International. “This goes totally against the concept of the sharing economy.”

Didi lashes out at car-hailing guideline proposals in leading cities

Wang said the rules would hurt taxi drivers, passengers and operators alike and put many drivers out of work.

Didi Chuxing, the biggest industry player with an 80 per cent market share, said the draft rules would hinder innovation.

Didi, valued at about US$35 billion after it took over Uber’s China operations in August, said that of the 410,000-plus activated driver accounts in Shanghai, fewer than 10,000 – or 2.5 per cent – belonged to permanent Shanghai residents.

Those who were not would either become unemployed or “underground taxi” drivers if the rules were adopted, it said.

“Didi requests local governments to give equal rights for employment to local and non-local residents. Please do not let the public lose their confidence and passion for entrepreneurship and innovation,” the firm said in a statement in response to the rules.

China’s car-hailing market is set to expand on increased investment

Uber-style taxi-hailing services via mobile apps emerged in China in 2012, when cabs in most Chinese cities were in short supply.

The convenience and subsidies to both drivers and passengers ensured the service spread quickly in urban areas – Didi alone completed 1.4 billion rides last year.

Consumers are worried that the harsh regulations will turn back the clock to the old days “when getting a cab was like winning a lottery” in busy districts during rush hours, according to comments on Chinese social media.

Some questioned whether it was legal for municipal authorities to effectively ban people from working as taxi drivers based upon their residency.

China green lights local councils to license car-hailing services

Beijing lawyer Zhao Zhanling said many clauses in the published drafts were against existing laws, on top of employment discrimination.

For instance, China’s Administrative Licensing Law prohibited local governments from banning non-local competitors, which the draft taxi-hailing rules appeared to violate, Zhao said.

In Beijing, transport authorities invited public feedback on the draft rules by October 14, allowing people just six days to give their views.