China’s ministry of transportation has proposed new guidelines that would significantly increase the amount of power the government holds over ridesharing apps like Didi Kuaidi and Uber. If passed, the regulations may provide clarity for companies, which have run into a multitude of legal headaches, but it could also force them to retool their business models and operate more like traditional taxi fleets.
Adhering to the new rules may also be expensive for Didi Kuaidi, which was formed by a merger of China’s two largest ridesharing apps in February, and Uber.
Building marketshare is not cheap—both companies have already raised significant amounts for their China expansion plans—and the new regulations may make it even more difficult for either to turn a profit. According to Crunchbase, Didi Kuaidi has raised $4.4 billion so far. Uber has raised $1 billion specifically for its China business and says it expects the country to be its largest market soon (in total, Uber has received about $6.6 billion in equity funding to date).
In a statement, an Uber China representative said the company is in “close communications with local regulators, and will proactively fit in the new norm of industry development, follow the spirit of the draft regulation, comply with all requirement, and continuously partner with local governments in implementing the new set of rules.”
Didi Kuaidi recently received a license for private car bookings in Shanghai, making it the first to get official approval from the government (other companies can also apply), but the proposed regulations would subject it to even more oversight.
A Didi Kuaidi spokesperson said “This draft of the proposed regulation is still at the stage of public consultation. We will give responsible feedback and recommendations to the authorities, after studying opinions and responses from experts, industry players, and most importantly passenger and driver communities.”
Published on the Ministry of Transport’s site on Saturday, the draft is open to public feedback for a month.
Though neither Didi Kuaidi or Uber (or other ridesharing apps) were mentioned by name, several proposed regulations seemed targeted at specific companies. For example, the new rules would require ridesharing apps to have servers in China and obtain a license to operate a telecommunications business. This means that like other foreign tech companies operating in China, Uber would be required to undergo national security checks.
Uber China told TechCrunch that it has already obtained licenses as an Internet company and has servers in China.
Forcing Ridesharing Apps To Operate More Like Traditional Taxi Fleets
The proposed regulations also give the government more oversight into what new cities ridesharing apps can launch in, and require all drivers to obtain qualifications. Furthermore, once the companies start operating in a new city, authorities can dictate fees (which the Ministry of Transport says would be determined in conjunction with local trade associations and unions), how many cars they can operate at a time, and where they are located. The government claims that this will reduce traffic congestion and balance supply and demand.
Ridesharing app operators would also be required to sign labor contracts with drivers, provide insurance for contractors, and share data with the government—in other words, they would have to operate more like traditional taxi companies.
While the Ministry of Transport’s draft regulations present new challenges for Didi Kuaidi and Uber, it may also solve some problems, including police investigations into the legality of Uber’s services.
Since most transportation laws were written before they exist, ridesharing apps have operated with murky legality by claiming they are tech platforms and therefore not subject to the same regulations as traditional taxi fleets. This is beginning to change around the world, however, as governments put stricter oversights into place. For example, the Philippines introduced regulations for ridesharing apps in May, while India—an important market for Uber and Ola—is also in the process of drafting new laws.