OTOMAKASSAR – 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 percent of its 410,000 private drivers meet that standard.
Didi’s situation highlights the unpredictable nature of regulation in China, where startups 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 licenses are typically issued by administrations for a fee, according to Xinhua news agency. The rights are licensed 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 percent of the service’s cars in Shanghai, Didi said.
Beijing’s draft policy kicked in on Nov. 1, 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 percent 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.(Bloomberg)