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Local Transport Regulations Threaten China’s Ride-Hailing Market

In August, Uber Technologies Inc. announced that it would sell its China Operations to Didi Chuxing, a Chinese ride-sharing company.  Prior to the merger, both companies had struggled to turn a profit while they engaged in a price war, with Uber unable to successfully localize to the China market.  It actually joins a long list of highly successful Western firms that have failed to tap into China’s economy.  Many companies find China’s “political structure, legal system, and regulatory rules” vexing.  Uber had lost “$2 billion in China in two years there,” and was facing severe pressure from its investors to sell off its assets in China to cut its losses.  The idea was for the two companies to come together and consolidate power in China’s ride-hailing market.  Now, “Uber and investors in its UberChina unit will take a 20% stake in the company (Didi).

Since then, Uber China has undergone massive changes.  In terms of the app’s functionality, the latest version of Uber China is markedly different from the original app.  Firstly, the English-language interface has been removed, and foreigners will not be able to use the app unless they download the Chinese app store version of the app.  This is not usually the case elsewhere, and it essentially means there is “one service for China and another for the rest of the world.”  Secondly, Didi has removed the option for payment with foreign credit cards, which complicates matters for expats living in China who wish to use the service there.  Lastly, a region-specific support division that can usually be accessed inside the app has also been made unavailable.  Instead, users are given a customer service hotline to deal with issues they have with the app.

But that is not all.

Amid external pressure from the municipal governments of Beijing, Shenzhen, and Shanghai, Didi has been forced to disable “carpooling, inter-city transport, and rides from 7-seaters cars from its app.”  Regulators are currently pushing for stricter restrictions on the hiring process in ride-hailing services.  According to the draft regulations, Beijing’s “transport commission is proposing to require individuals from driving for ride-hailing services to have local household registration, banning migrant workers from outside the mega-cities to operate cars for those services.”  Additionally, Beijing is also trying to mandate the use of locally registered vehicles, as well as establish an age limit for drivers.  By enforcing these stipulations on drivers, these municipal governments are hoping to “shrink the crowded capital” in urban areas.

These will be unwelcome changes for Didi.  If formalized, these proposed regulations will disqualify many current Uber drivers, thereby decreasing the total number of ride-share drivers available.  It is estimated that ride-share costs in these cities will have to double in order to for Didi to sustain profits.  It remains to be seen whether these changes will, in the long-run, lower the demand for ride-sharing in China.

Written by: Adrian Lo


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