Uber and Didi Gets Green Light to Operate Legally in China

The Chinese government issued new policies to make ride-hailing business legal.

Uber and Didi Gets Green Light to Operate Legally in China

By: Abdullah Saeed Qureshi Published:

The Chinese government issued new policies to make ride-hailing business legal

The Chinese government took a big step in making ride-hailing services like Uber and Didi Chuxing legal in the country, as it handed out new national guidelines.

UberChina, the Chinese ride-hailing arm of Uber Technologies, said it welcomes the regulations and will abide by them. Moreover, the company also added that the rules will play a vital role in growing the ride-sharing business in the mainland region.

Zhen Liu, senior Vice President of Corporate Strategy for Uber China, said in an official statement: “We welcome the new regulations, which send a clear message of support for ride-sharing and the benefits that it offers riders, drivers and cities.” In addition Mr. Liu also added that UberChina will fully assist the policymakers to ensure the effective implication of the practices throughout China.

However, the new guidelines are somewhat stricter. Under the new laws:

  • Vehicles that have reached more than 600,000 kilometers (370,000 miles) must not be used by the ride-hailing companies and not allowed on the road for any purpose.
  • Vehicles after 8 years of service must be retired though the owners can keep them for personal use.
  • Drivers hired by the ride-hailing applications must not have any past or present criminal record, which include violent crimes, alcohol and drug related charges.
  • The drivers should have at least three years of professional experience and must be licensed by the taxi regulator.

In addition, the Chinese government also removed heavy restrictions from the final draft such as car quotas and government set fares. However, there are strict guidelines about providing excessive discounts or low prices to entice more customers. Local authorities will set the minimum and maximum fare rates.

Similarly, allowing ride-hailing vehicles to be used for personal use after eight years and adding a mileage clause to it also depicts a lenient stance by the Chinese government. The cars could have been banned after 8 years of service regardless of mileage. In addition, the newly issued regulations also give drivers the flexibility to work for both ride-hailing companies Didi and Uber.

China’s Vice Minister of Transport Liu Xiaoming, said during a press conference that the Chinese government has provided the ride-hailing companies with a flexible environment to operate and grow in. He further added,: “After input from industry stakeholders, the regulators decided to allow ride-hailing companies to operate more freely.”

The new guidelines were released a couple of weeks after UberChina investors called for a “truce” between the two ride-hailing giants in the country. On July 22, UberChina’s investors clearly passed their message to the company, highlighting that it’s time to end the costly fund-raising campaign in China. Up till now, both the companies have raised more than $20 billion in funds from various institutional and private investors.

Back in January, Travis Kalanick, Uber’s CEO said that the company is burning more than $1 billion in cash every year in China in order to compete with its arch rival Didi Chuxing. Mr. Kalanick, who has criticized Uber’s Chinese rival for buying up the market share through irrational fundraising, has always favored building up the business but also emphasized on the fact that it’s essential for his company to do the same in order to stay in the market.

Uber has invested billions of dollars to expand its footprint in the world's second largest economy and is prepared to spend more money to get a bigger share of the ride-hailing market. In any case, the company's investors have made it clear that ongoing spending-spree and fundraising war must stop. Some analysts believe that it’s similar to the Cold War, where the US and Soviet Union were locked in an arms-race, spending significant amount of money.

Uber Technologies, valued at about $68 billion, has about $11 million in cash and equity. However, the company’s China business hasn’t performed up to expectations mainly due to stiff competition from Didi Chuxing, which is backed by the Chinese e-commerce giant Alibaba Group Holding Ltd and Tencent Holdings.

However, Mr. Kalanick’s attachment to the Chinese market indicates that the ride hailing app is willing to do anything in order to expand in the country. Uber’s CEO has already termed China as a key strategic hub, which generates more than 50% of revenue for the company despite only operating in about 10-20 cities. Didi, which controls more than 90% of China’s ride-hailing market, operates in almost all Chinese cities. Recently, tech giant Apple Inc. invested $1 billion in Didi.

The new regulations will likely help reshape the Chinese ride-hailing industry and might bring a stop to the ongoing fundraising war. Industry experts opine that if Uber gets licenses from local taxi regulators without much difficulty, the company’s expansion plans in China will get a significant boost. Though it faces heavy competition from Didi, it can still manage to stand shoulder-to-shoulder with the local giant if the company plays its cards right.