Uber’s Travis Kalanick might have last laugh amid new Chinese rules
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Hong Kong: Chinese ride-sharing company Didi Chuxing was on a roll just a couple of months ago after driving Uber Technologies Inc. out of the country to cement itself at the top of the market. That was before local governments stepped in with new rules that could derail its victory.
The nation’s largest metropolises, including Beijing, plan policies that would only allow local city residents to drive for car-hailing apps. That spells trouble for Didi as most of its chauffeurs in those cities wouldn’t qualify. In Shanghai, less than 3% of its 410,000 private drivers meet that standard.
Didi’s situation highlights the unpredictable nature of regulation in China, where start-ups operate in sectors that lack clear policy guidance. While the national government has announced plans to formally allow ride-sharing services, administrators at the provincial level can set different rules to protect vested interests. If the local residency policy is implemented, Uber’s sale of its unprofitable China business to Didi, along with a cash injection from the Chinese company, might give Travis Kalanick the last laugh.
“It would be a huge blow for Didi as a significant part of its revenue relies on the private car business,” said Marie Sun, an analyst at Morningstar Investment Service. “It’s unclear whether it was pure luck or Uber took precautions against policy risks, but Travis’s move now seems quite genius.”
Chinese cities have an interest in protecting locals because taxi licences are typically issued by administrations for a fee, according to Xinhua news agency. The rights are licenced to cab companies that sublease it to drivers, who in turn hand in a cut of their revenue.
About two dozen cities across China have issued potential new rules, with most requiring the vehicles to be locally registered and feature higher quality standards and specifications. A minimum wheelbase width for example would rule out more than 80% of the service’s cars in Shanghai, Didi said.
Beijing’s draft policy kicked in on 1 November, whereas Shanghai has yet to announce when it plans to carry out the new directive. None of the cities have issued a finalized version of their policy and Didi said it’s still working with different administrative bodies.
“We are pleased to note substantive improvements on original drafts as a result of the consultative process,” the company said in an e-mail, without elaborating.
When Uber and Didi struck their China deal at the end of July, both companies had been losing billions of dollars in a costly battle for market share. Uber and its China backers got a 20% stake in Didi, with the combined company said to be valued at $35 billion. The Chinese company also agreed to invest $1 billion in Uber’s global company, people familiar with the matter said at the time.
Uber declined to comment in an e-mail and referred questions to Didi.
Didi has reigned supreme in China, in part on its argument to policy makers that its service creates jobs and eases traffic jams. Ma Huateng, chairman of backer Tencent Holdings Ltd, pleaded with Premier Li Keqiang last month not to obliterate ride sharing platforms with the new rules, Sina reported. Li responded by saying that he would ask the relevant cities to conduct more research.
“Judging by how no private car drivers have received notices in Beijing from either Didi or the government to stop using the app if they’re non-local, it probably means that it will take some time before these rules can really be implemented,” said Cao Yang, a Beijing-based researcher at internet consultant IResearch.
Betting that the rules won’t be strictly implemented has prompted Zhang Xianchang, 26, to keep driving in Shenzhen. His car isn’t locally registered and doesn’t meet the quality demands. He says Didi sends him alerts when police raids are carried out in certain parts of the city.
“It’s not that I don’t want to register my car locally, there simply is too long a waiting line,” Zhang said, adding that he failed to win a lottery-like draw for a local license plate six times.
Didi serves about 300 million users across some 400 cities. Getting to that scale involved recruiting more than a million drivers from declining state-owned industries such as coal and steel along with another 1.4 million veterans or jobless people, it said in July. As Didi drivers flocked to major cities for work, it eventually irked some of the 2.6 million cab drivers and the companies behind them, leading to protests from Beijing to the southwest city of Chengdu.
“A lot of the local taxi businesses have close ties with the local provincial governments, it’s reasonable that some of them might try to use their leverage with the government to limit Didi’s operations,” said Sun.
It’s unclear whether policy makers will forge ahead as regulators sometimes halt implementation after getting pushback from industry players. In January last year, China’s commerce ministry put forward a draft regulation that required internet companies like Tencent to ensure only domestic investors could control the company or to ask for a State Council waiver. Those rules were never implemented or mentioned in official media again.
In the meantime, Didi has increased its subsidies for private car drivers, on some days giving out as much as 100 yuan to drivers, according to Song Yingche, a driver in Beijing who doesn’t have a local residency.
Song continues to use Didi because he said past cases suggest the company will fully reimburse drivers for fines. Didi has been halted more than 30 times in various cities and has had to pay hundreds of millions of yuan in fines.
“There are a lot less drivers on Didi these days,” Song said by phone. “I don’t really care about the new rules, but I do think it’s very unreasonable to limit people by their residency.” Bloomberg