Car-hire industry races ahead despite legal issues in China
07/06/2015|6:52:02 PM|Caixin

The ride-sharing business exists in a legal grey area, but has still boomed in China over the past year. Many in the public applaud the mobile application-based business that allows them to make bookings with owners of private cars, but others, especially taxi drivers, say the business is unlicensed and raises safety concerns.

Taxi companies, which are largely state-owned, are among the strongest critics of car-hire services. In recent months, cab drivers in the big cities of Shenyang, Jinan and Nanjing have demonstrated over eroding business. They argue that the government has failed to enforce the law by cracking down on the new business.

Regulators have not worked out clear, nationwide regulations for car-hire apps like Didi and Kuaidi, but some local authorities have gotten tough, fining drivers.

Xu Chenguang, a spokesperson for the Ministry of Transport, said in November that car-hire services should not be banned. But on January 9 said drivers were banned from offering rides in their own cars unless they worked with auto rental companies.

In late April, transport officials in the southern city of Guangzhou raided the offices of San Francisco-based Uber Technologies Inc. and said car-hire services involving private drivers are illegal.

Despite the contentious debate, companies offering car-hire services have grown rapidly, and they can now count on the support of tens of millions of people using the apps. Uber, an industry behemoth that has been operating in 11 cities in China, said it has been handling 1 million rides per day in the country. The company that runs the Didi and Kuaidi apps, the major domestic rival of Uber, said it receives 3 million requests for rides each day.

Uber CEO Travis Kalanick recently said that this year the company will expand its services to 50 more cities in China with a population of 5 million people or more.

No One Is Happy

The emergence of car-hire apps in 2012 has changed the way many Chinese travel around their cities, and has also altered the traditional taxi industry and its 2 million cab drivers.

Kalanick said in May in a conference in the southwestern province of Guizhou that when the cost of using Uber to book cars is lower than owning a car, many people will no longer need to buy their own vehicles.

Uber's service will also help improve the efficiency of public transport in cities, he said, citing the fact that Shanghai has seen 10,000 fewer cars on its road every day since the arrival of Uber.

Zhu Pingdou, vice president of the Didi-Kuaidi company, said car-hire services can better allocate transport resources and will cut ownership of private cars in China by one-third.

Several taxi drivers said they have been suffering with slower business. In most cities, cab drivers make their money from the difference between what passengers pay and what they owe to taxi firms. There is little room to maneuver because prices are controlled by the government.

Yin Hao, a taxi driver in the eastern city of Nanjing, said "fares and the number of taxis in operation haven't been changed in Nanjing for 10 years."

The city has 12,000 cabs charging about 10 yuan for the first 3 kilometers traveled and 2 more yuan for each kilometer beyond that. Yi said these figures are too low.

Drivers have to pay from 6,600 yuan to 6,900 yuan to their companies each month for their operating license, and "with low incomes, it is difficult to improve services," Yin said.

Transport regulators have repeatedly asked taxi drivers not to turn down any customers, but they continue to avoid certain areas during rush hour so they can save fuel and time, said Tan Yi, a cab driver in the city of Yiwu, in the coastal province of Zhejiang.

In contrast, the car-hire business is more flexible. Uber offers drivers compensation to encourage them to operate in certain areas to meet demand. The open platform also allows customers to track price changes and decide for themselves whether to use the service.

An executive at the Didi-Kuaidi company said that it offers different services, from luxury vehicles to budget ones, to meet the demands of different types of clients. Unlike Uber, which only works with the owners of private cars, Didi-Kuaidi also cooperates with local taxis.

Many people complain taxi drivers offer poor services in a slew of ways: communicating poorly, smoking with passengers in the car, being dirty and more. But the apps allow both drivers and passengers to rate each other, something that could help change this. Taxi drivers are offered bonuses based on their ratings.

Shi Yegui, general manager of Beijing Saifafu Taxi Co., estimated that since car-hire services emerged in the capital last year, the city's taxi companies have seen revenue decline by as much as one-quarter.

This has prompted the industry to adapt. In Yiwu, the government announced a plan in May to make it easier for private investors to back taxi companies and reduce the burden on cab drivers by cutting their monthly payment by more than 800 yuan.

But Shi said this is not enough to spur taxi companies' to improve their services.

Wang Limei, vice chairman of the China Road Transport Association, said the fundamental problem with the taxi industry is strict state control of prices and market entry.

"Now that the taxi industry is in bad condition, neither companies nor drivers are satisfied," she said.

Regulatory Hurdle

Sources close to the Ministry of Transportation said that the drafting of a taxi industry reform plan is underway. An official close to the work who asked to be anonymous said the plan will cover car-hire services.

The official said that regulations will be issued that allow taxi companies to launch car-hire services while existing car-hire app operators will be asked to obtain licenses.

One June 3, the ministry held a meeting discussing the plan with representatives from taxi companies, but car-hire companies were not invited, a source close to the matter said.

Car-hire companies such as Didi-Kuandi partner with licensed drivers but do not sign contracts with them. Many think that it will be difficult to regulate these companies the same way taxi firms are overseen.

A lack of rules has put car-hire businesses in an awkward position. On June 2, Beijing transportation authorities held a meeting with the Didi-Kuaidi company and accused it of breaking the industry's rules.

The Beijing Municipal Transportation Commission said that since January 1, the city has logged 963 cases of illegal commercial vehicle operation, including 161 drivers registered with Didi-Kuaidi.

A source close to the ministry said that although there are no regulations covering the car-hire business, it is illegal under existing rules.

Zhu said his company welcomes government supervision, but he believes restrictions on private car owners must be lifted. "The industry has become an accomplished fact anyway," he said.

He may have a point. In Didi-Kuaidi's headquarters in suburban Beijing, a screen tracking its car-hire platform showed that on June 1, another 8,732 individual drivers registered for service.

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