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China issues guidelines to legalize ride-hailing apps like Uber and Didi Chuxing

ICE Graveyard 28/07/2016 Jon Russell

China took a big step forward today after it announced national guidelines to make ride-hailing services like Uber and Didi Chuxing legal in the country from November.

Drivers from both services and others like Yidao Yongche, majority owned by big-spending LeEco, have operated in fuzzy areas, with police arresting drivers and impounding cars on a seemingly inconsistent basis in China. (As a non-Mandarin speaker, having police stop your Uber or Didi is a truly worrying experience that I’ve lived through.) These rules are still to be adopted by regional and local officials across China, but this is most definitively a step in the right direction for ride-hailing operators.

Sources told Bloomberg that the main features of the rules, which are slated to go into effect from November 1 this year, include:

  • Online car booking services will be made legal
  • The government will encourage development of a sharing economy and online car booking and non-cash payments
  • Drivers must have a minimum of three years of driving experience to work on a ride-hailing platform
  • Cars cannot have more than seven seats and must be retired from service after reaching 600,000 km
  • User information and data collected by car-booking platforms must be stored within China and for at least two years

Some of those stipulations may count against part-time drivers, and it remains unclear how that will impact Uber and Didi’s fleet of cars. In general, though, the duo have both been very vocal in welcoming the regulations — most likely because they are not as extreme as an earlier version of the proposal had been.

Uber called the announcement of the regulations “a welcome step in a country that has consistently shown itself to be forward-thinking when it comes to innovation.”

“Modern regulations can let these services grow while ensuring public safety and protecting consumers,” the company added in a blog post.

Didi Chuxing, the company that is widely acknowledged to be leading Uber in China and recently raised a round in excess of $7 billion, called today’s development “a positive first step.”

“We believe the Rules reflect the government’s open-minded regulatory approach to the mobile car-hailing industry in the broader context of the sharing economy,” it said in a statement.

“As a member of the rideshare community, DiDi welcomes the government’s endorsement and encouragement of the industry and China’s emerging sharing economy. We believe the Rules will usher in a new stage of growth for China’s online ride-booking ecosystem and that DiDi is prepared to meet these new requirements,” the company added.

It isn’t all rosy right off the bat, however. As mentioned, these rules will need to be adopted at both provincial and municipal level across China, and, in order to comply with them, the ride-hailing companies will need to apply and secure new licenses for their businesses.

Didi — which said it will set aside around $15 million for a “development fund” to speed up its integration with regulators, taxi firms and drivers — did voice some concern at the licensing issue process proposed.

We noticed that the Rules require, in general principle, local taxi administration authorities to manage the platform licensing application process, and a certain discretion is granted local governments to determine the detailed operating requirements. We call for local authorities to adopt market-driven approaches that encourage innovation and new business models in order to continue serving the real needs and interests of our ecosystem participants. One of the greatest merits of ridesharing is to mobilize and efficiently allocate fragmented and under-utilized resources to meet fluctuating transportation demands. We also hope local practices will allow for separate treatment of part-time drivers to foster supply-side reform in the transportation industry.

Didi claims 14 million drivers and over 300 million active users with 10 million rides per day. Uber China doesn’t issue figures, but Chinese cities account for a number of Uber’s busiest cities on the planet. While those figures are impressive and indicative of how large a market China is, these companies are still scratching the service.

Li Zijian, senior director for international strategy at Didi, recently estimated that his company has reached just 1.1 percent of consumers in the country. Li pegged the on-demand transportation industry in China to be worth $200 billion over the next five years, and legitimizing the industry is surely an important component — for both Didi and Uber.

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