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China's government should clear the road for car-hire businesses

06/08/2015| 7:09:52 AM|

If officials can change the rules to benefit state-backed taxi companies, as was done in Guangzhou, they can also make changes to help innovators.

By Fu Weigang  - Beijing transport officials told the leaders of the firm behind the Didi and Kuaidi smartphone applications on June 2 that apps allowing rental or private cars to pick up passengers were breaking the law because they lack licenses.

Then two days later, domestic media outlets reported that the car rental arm of the state-owned Beijing Shouqi Group Co. Ltd. planned to explore the car-hire service and set up a company offering its own app. Soon afterward, the firm denied the reports, but the news had some people wondering whether the government is cracking down on some players to create room in the market for state-backed firms.

For my part, I want to know why a car-hire service relying on vehicles from rental companies, drivers from temporary labor agencies and apps linking individuals with drivers breaks the law.

Transport officials have in the past said the car-hire business represents innovation. Liang Jianwei, a spokesperson for the Beijing Transport Law Enforcement Corps., which supervises the taxi industry, said this year that the model that relies on cars from rental companies and drivers from labor agencies is not illegal.

So, why the U-turn?

Some media outlets say the government's decision is linked to the fact that state-backed firms play a major role in the taxi industry. Take Beijing for example. The capital has 66,000 taxis, and state-backed firms such as Shouqi Group and BAIC Group run more than 60 percent of them. If the capital legalized the car-hire business by issuing licenses, most of them would likely go to these state-backed firms.

Guangzhou has issued 2,950 licenses to run car-hire businesses, and the winners were state-backed taxi companies, such as Guangzhou Baiyun Taxi Group Co. Ltd. and Guangzhou Transportation Group Co. Ltd. The city's legislators also revised regulations on the taxi industry on May 19; the new rules say car-hire firms need to gain approval from the government.

This is interesting.

Internet firms such as Didi-Kuaidi have invested a lot to develop their business, making the concept popular with the public. However, the market's trailblazers will not be the ones picking the fruit. This will be done by taxi companies.

What's more, the car-hire industry grew in gray or black areas in the past, but now, when state-backed firms want to enter the market, legislators change the rules for them.

Internet firms might not be all that interested in getting licenses to provide cars anyway. A company needs lots of money to put together a fleet of cars, but the business offers low returns. Instead, Internet companies will offer apps to help passengers get in touch with these firms, then make money from other services.

People like the services offered by Internet firms, which have built a network covering the entire country; passengers are booking more than 2 million trips on the apps every day. Individuals only need to install an app on their smartphones and they can enjoy the service in any city. This really helps businesspeople traveling to cities with bad traffic.

Internet firms have improved the efficiency of companies and their cars. I would say they provide an innovative management method: they employ Net technologies to improve the efficiency of vehicles. In the past, car rental companies could only rent out their cars by day, but the apps allow them to offer rentals by the hour.

The major reasons for bad traffic are the increasing number of private cars and their low efficiency. Usually, one person drives a car, which might be used only twice a day. The government has many times called on drivers to carpool, but few have listened. New apps have solved the problem. In fact, many people will drop their plans to buy a car because of this new form of carpooling.

"The innovative management model is challenging city governments around the globe," my friend professor Shen Ling said.

If the model is liked by the market but breaks the law, the problem is that there is something wrong with the law. Some places overseas, such as the U.S. state of Colorado, have made adjustments like establishing companies to allow drivers to use private cars to transport passengers.

If legislators can change rules so state-backed firms can offer the car-hire service, why can't they make other changes? In my view, the government should promote fair competition among market players.

Fu Weigang is a research fellow at the Shanghai Institute of Finance and Law

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TAGS: car hire | transport authority | Didi-Kuaidi | Uber
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