Many countries and cities have been working to understand the balance of how to embrace the ‘sharing economy,’ while also regulating them to ensure safe conditions, regulatory and tax compliance and fair competition with the existing players. Most recently, China has taken the lead to set requirements for app-based hailing services that are in line with those that the taxi industry faces, including comparable requirements for permits and drivers licenses, accountability structures for passenger complaints and accidents, and the issuance of receipts for tax purposes. These guidelines, set out below, give a sense of how China is responding to the ride-hailing industry.

regulatory-framework-ride-hailing-02

Under the new regulations, taxis and app-based ride-hailing will be positioned for different market segments, with app-based ride-hailing offering higher-quality (and likely more expensive) door-to-door transport services. Whether this trend continues will depend on China’s taxi operators, with a nationwide fleet size of more than 1 million. To respond to the new competition, taxi companies will be urged to upgrade their technology and adopt a more labour-friendly business model. With such convergences in technologies, some of the more innovative taxi companies may enjoy rapid growth benefiting from late mover advantage and market education done via VC-funded billion-dollar subsidies in the past two years. Taxi companies that fail to upgrade technology and management practices are likely to face restructuring or cease to operate under market competitive forces.

In addition to tighter requirement on drivers and vehicles for app-based ride hailing, city-level governments may also restrict their fleet size and dynamic pricing models. We’ll be keeping a close eye on how this impacts market size and profitability, particularly in light of DiDi’s acquisition of its main rival, Uber China, and the subsequent antitrust investigation by the China Ministry of Commerce.

Moving forward, we will continue to track how this industry evolves for key insights and lessons learned on how cities and countries can effectively respond to the dynamics of the sharing economy.

– Dr. Andy Zheng, Adjunct Fellow

Key References:

  1. China Ministry of Transport, 2016-07-28, 《网络预约出租汽车经营服务管理暂行办法》.

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  • China Ministry of Transport, 2016-09-09, 《巡游出租汽车经营服务管理规定》. [link]
  • China Ministry of Transport, 2016-09-09, 《出租汽车驾驶员从业资格管理规定》. [link]
  • China State Council, 2016-07-28, 《国务院办公厅关于深化改革推进出租汽车行业健康发展的指导意见》. [link]