Didi Chuxing becomes the first Chinese ride hailing app to receive a car-booking license from the Shanghai traffic authorities.
The license gives the Chinese company a green light to operate as a platform with riders in Shanghai now able to hail privately-owned vehicles. It is being introduced as a pilot program.
In September, The Ministry of Transport of China was reported to draft new regulations to curb the use of Internet-based ride-hailing services by requiring that service platforms get transportation permits and drivers have taxi licenses. The regulations may impact the ride-hailing businesses especially market leaders Didi and Uber of its private car- – hailing service.
Before that, car-hailing services without taxi licenses had been operating in legal limbo. Authorities in multiple Chinese cities had raided the offices of Didi and Uber on various occasions earlier this year, impounding thousands of “black cars” and iPhones pre-loaded with ride hailing apps, citing lack of background checks and quality control as primary concerns.
Under the newly announced Shanghai pilot program, Didi, as a licensed independent platform, must undertake oversight responsibility and will be held liable if, contracted drivers and privately-owned vehicles, fall short of minimum government standards established for insurance, vehicle condition and driver eligibility.
The Shanghai program will not place restrictions on private cars or require drivers to obtain taxi licenses.
Didi’s chief executive, Cheng Wei, called the move “a landmark moment.” In a statement, Cheng applauded Shanghai “for respecting realities and embracing Internet and technological innovation.” He also added that “too much micromanagement is very likely to throttle enterprise.”
A person with knowledge of the details told Chinese media, Caixin, that Didi managed to win over administrators by stressing the flexibility of a private car setup which would greatly alleviate urban transportation woes.
Shanghai’s cabs are only able to meet half of demand during rush hour and allowing more cabs onto the road will exacerbate traffic congestion. However, requiring private cars to register as full-time commercial vehicles, under the current policy, will pose a real threat to the state-controlled taxi industry, a situation the authorities don’t want to see.
Conversely, part-time private car sharing helps mobilize idle resources, Didi reasons.
To maintain amicable government relations and avoid riling up officials, Didi had refrained from launching its cheaper-than-cab private car service in Shanghai, giving its rival, Uber, a head start in China’s second largest city.
Nationwide, Didi is financed by Chinese Internet giants, Tencent and Alibaba, and has taken about 82.3% of the private-car sharing market, according to research firm Analysys International.
Uber, having raised 1.2 billion USD in its latest round of funding for its standalone Chinese company, has opened a subsidiary in the Shanghai Free Trade Zone, and is preparing to apply for a car-booking license, it said in a statement on Thursday.
The heated war between Uber and Didi has gone far beyond Chinese borders. In September, Didi announced investments in Lyft and Ola, Uber’s rivals at home and in India.