Policy | The impact of China’s new regulations on Uber and DiDi

[1]. Meanwhile, China’s State Council also announced the guidelines on reforming the ride-hailing industry [2]. On 9 September 2016, China MOT announced two pieces of amended regulations on taxi operation [3] and driver’s qualification [4], respectively. Together, the three pieces of MOT regulations set China’s regulatory framework on the taxi and app-based ride-hailing industry, with the State Council guidelines setting the overarching direction.

As shown in the chart, the new regulatory framework has set comparable requirements on cruising taxis and app-based hailing services. Addressing the passenger safety concerns, quality control is put in place through issuing and managing permits and driver licenses. Accountability of drivers and operators is enhanced in event of passenger complaint or accidents. All transactions have to issue receipts for taxation purpose.

Under the new regulations, cruising taxi and app-based ride-hailing will be positioned for different market segments, with app-based ride-hailing offering higher-quality (likely more expensive) door-to-door transport services. China’s taxi operators, with a nationwide fleet size of more than 1 million, are 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, local city-level government’s jurisdiction may also restrict fleet size and dynamic pricing, impacting market size and profitability of Uber-championed peer-to-peer ride-hailing business model. On 1 August 2016, DiDi, announced acquisition of its main rival, Uber China, reinforcing DiDi’s market leader position in the China’s app-based ride-hailing market. During a press conference on 2 September 2016, China Ministry of Commerce announced an antitrust investigation into the DiDi-Uber deal.

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》. [link]
2. 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]
3. China Ministry of Transport, 2016-09-09, 《巡游出租汽车经营服务管理规定》. [link]
4. China Ministry of Transport, 2016-09-09, 《出租汽车驾驶员从业资格管理规定》. [link]

 
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