INTERNET: Uber, Didi Kuaidi on Cusp of Legal Status

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Bottom line: Beijing should be commended for taking a national approach to regulating private hired car services, and should continue to update its policies to reflect the rapidly changing sector.

Beijing welcomes Uber, Didi to compete with taxis

A rambunctious young group of Internet companies could soon receive legal status in China, with reports that Beijing is getting set to unveil new rules governing private hired car services as early as this week. Beijing should be praised for taking an even-handed approach and regulating these services that are creating unprecedented competition for taxis, rather than bowing to pressure from state-owned taxi companies that want the aggressive group of newcomers banned.

These newer services do need to be regulated to avoid crime and fraud that has plagued industry pioneer Uber and similar services in other parts of the world. But to outlaw such services, like some countries have done, would have cost China an opportunity to nurture a whole new industry, including the homegrown Didi Kuaidi that was valued at $16.5 billion after a recent funding.
Allowing and regulating such services will also provide much-needed competition for existing taxis, which are often in short supply and also engage in their own mischief through practices by selectively refusing rides to some passengers. At the same time, Beijing must also be careful to keep fine-tuning regulatory policies to ensure a fair playing field for everyone as the industry evolves and new issues emerge.

Governments throughout the world have faced a difficult situation with the rapid rise of private car services, which compete directly with taxis by using global positioning services (GPS) to match private drivers with consumers looking for rides. Some countries like Thailand and India and numerous cities in the US and Europe have outlawed Uber altogether, amid reports of crimes and fraud linked to the services.

China looked like it might be taking that route too, after Uber’s offices in the major cities of Chengdu and Guangzhou were raided earlier this year. While illegal activity was a central concern, local governments were also feeling pressure from local taxi fleet operators that are highly regulated and were losing big business to Uber and other similar services.

Amid the pressure for local bans, some big cities began studying how to regulate the new companies, sending a positive signal that operations would be allowed to continue. Shanghai led the way in late July when it announced its own preliminary rules to govern the industry. (previous post)

Uber responded by saying it was committed to the China and planned to spend $1 billion on the market, and last week raised $1.2 billion for China operations that it plans to spin off as a separate unit. From the regulatory perspective, the biggest breakthrough came around the same time as the Shanghai announcement, when reports emerged that Beijing was organizing an unusual series of special meetings between the 8 government ministries with oversight responsibilities for these new companies. (previous post)

Preliminary regulations coming

Less than 2 months after those meetings began, media reported last week that Beijing will soon announce preliminary regulations that will finally grant full legal status for these service providers. (English article; Chinese article) The reports say the new rules would cover some of the most basic issues, such as formal licensing of operators and requirements that their drivers pass tests and obtain formal limousine driver licenses.

In a slightly worrisome move, the new rules would also reportedly require hired car services to charge service fees that are 50 percent higher than that those for taxis. Such a discrepancy could seriously undermine the competitiveness of these hired car services, though they could still compensate through promotions and other subsidies, and through better quality service.

Despite that potentially onerous requirement, Beijing should be applauded more broadly for taking a prudent approach to the issue and tackling regulation at the national level rather than relying on individual cities to make their own rules. Such an approach will lay out a strong national framework paving the way for development of an industry that serves many useful functions.

Such services not only create billions of dollars in new economic activity, but can also help to clear roads of congestion and ease pollution by making hired car services more convenient and affordable. Such companies will also provide thousands of new jobs, both by hiring drivers and also through employment at their corporate offices. At the end of the day, Beijing is making the right move by crafting a strong framework to support this emerging sector, and should work closely with all parties involved to keep improving its oversight as the industry evolves.

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