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Local car-hailing rules may wipe two-thirds of Didi’s value

10/14/2016| 9:31:19 AM| ChinaTravelNews 中文

Didi’s market value, currently estimated at USD 35 billion, may decline by two-thirds if the draft laws are implemented, an industry investor told Securities Daily.

Local draft legislations imposing tough requirements on car-hailing in China have been introduced for public comment in major cities including Beijing, Shanghai, Guangzhou and Shenzhen since October 8. 

The draft guidelines outline strict stipulations on car-hailing drivers and vehicles, and the rules introduced in Beijing and Shanghai are tougher than the other cities’.  

The rules in seven major Chinese cities including Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou, Chongqing and Tianjin require chauffeured vehicles to have a locally registered license plate.

Beijing, Shanghai and Tianjin go a step further and demand that car-hailing drivers must have a local household registration (known locally as Hukou), whereas Shenzhen and Hangzhou require drivers to either hold a local household registration or a residence permit.  

Data of industry giant Didi Chuxing suggest that less than 20% of the ride-sharing vehicles in Shanghai meet these proposed requirements. Of the 410,000-plus chauffeured cab drivers in Shanghai, less than 10,000 hold a household residency in the city they operate in. 

The car-hailing company told Shanghai newspaper Securities Daily that the proposed guidelines may bar most chauffeured vehicles, except mid- and high-end cars, from such operation.   

The resulting sharp drop in the supply of car-hailing vehicles and drivers, coupled with ride fee increase, may make Didi’s users less active. If the draft rules are implemented, Didi’s market value, currently estimated at USD 35 billion, may decline by two-thirds, based on the potential decline in the number of operating vehicles in Shanghai and the increase in marginal costs, an industry investor told Securities Daily.

Other start-up investors countered that raising the barrier for drivers would not depress market demand, and that Didi’s operating revenue would still grow, as would its market valuation, after the implementation of the draft legislation.   

Didi announced in August 2016 that it had reached a strategic agreement with Uber to acquire the latter’s brand, operation and data assets in China. According to the agreement, Uber will become the Chinese car-hailing giant’s largest stakeholder and hold 5.89% shares and 17.7% financial interest in Didi.

After the transaction, Didi will control more than 93% of China’s chauffeured service market. The car-hailing giant is the only company that has the Big Three Chinese conglomerates Baidu, Alibaba and Tencent (BAT) as joint investors. (Translated by Jerry)

TAGS: Didi Chuxing | Uber | car-hailing | regulations
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