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Article / 09 October 2015 at 2:55 GMT

China gives Didi the green light, Uber a honk

China Watcher / Shanghai
China
  • Didi-Kuaidi can run private taxi drivers - serious competition for Uber
  • Uber appears to be trying to be compliant with local regulations
  • The license for private drivers is a major blow for China’s licensed taxi industry

By Neil Flynn

The large domestic taxi-hailing app Didi Kuaidi has announced that it has received a license from the Shanghai Municipal Transportation Commission (SMTC) to run private taxi drivers legally.

This represents major progress in China because the legality of private taxi drivers has been thrust to the forefront since the explosive growth of Didi-Kuaidi and Uber. The issue over private drivers using the platform has been a major grey areas for firms and regulators, who are happy to encourage the technological development in the industry, but don’t want to encourage the unlicensed taxi business.

The new license would require mandatory insurance, third party liability insurance, carrier’s liability insurance and passenger insurance. The firm would also launch improved customer service channels in order to make sure that passengers are protected.

Over the past 12 months, Didi-Kuaidi has developed from two individual rival platforms that were specifically for licensed taxi drivers into a merged all-encompassing transport network, which allows users to find licensed taxi drivers, private drivers and carpooling.

While the licensed taxi driver business was never an issue, the government has been making a lot of noise about private taxi drivers. Uber has been the major target of this, given that the firm solely focuses on private drivers (and is foreign), and has seen its offices raided multiple times.

xxx
There's no need to pay the high tips for a licensed taxi when you can find
a private driver to do the journey for half the price. Photo: iStock


To put this issue into context, prior to Didi-Kuaidi, it would be (and still is) common to see private taxi drivers trying to hanging around airports and stations trying to undercut licensed taxi drivers on price, and taxi-hailing apps have essentially digitised this.

The price is calculated through the app, so the risk of been conned is decreased, yet whilst it may be convenient for passengers, the risk of getting into a car with an unlicensed taxi driver remains.

The license for private drivers would act as a major blow for China’s licensed taxi industry, because just like with other countries that have seen taxi drivers protesting against Uber, the private driver license would severely affect the licensed taxi industry.

A major difference is that in China, taxis are very cheap, and even here in Shanghai, a journey that would cost £40 in London would cost RMB25 in Shanghai. The problem is that taxis have become much more difficult to hail since the launch of the original Didi and Kuaidi apps, because during busy times it is almost essential to add a significant tip for the driver in order to them to take the fare.

The expansion into private taxi drivers has vastly increased the supply of taxis, so it becomes unnecessary to pay the high tips for a licensed taxi when you can find a private driver to do the journey for half the price.

Uber is accommodating regulator’s demands

On the same day was Didi-Kuaidi’s announcement, Uber disclosed that it is transferring all of its China business onto local servers, as well as plans to invest RMB6.3bn in China over the coming years.

This is a clear sign from the US firm that it is doing everything it can to get Chinese regulators to treat it like its domestic rivals. The largest concern that regulators have that specifically relates to Uber is that it is a foreign firm, and has since been treated differently to domestic rivals.

Regulators are uncomfortable with payment data being sent to overseas servers, which is a common theme across emerging markets. I have previously discussed India’s reluctance towards Chinese smartphone manufacturer Xiaomi, as its data is sent to servers in Beijing.

Uber has set up a Chinese subsidiary called Shanghai Wubo Information Technology Company in Shanghai’s Free Trade Zone. For those somewhat familiar with Shanghai, the free trade zone was originally an area in the outskirts of the city next to the international airport, but has since expanded to include the Lujiazui financial district in Pudong.  

Upon the announcement of Didi-Kuaidi’s license, Uber is said to be actively preparing the relevant documents and materials in order to attain the same license. While I don’t believe that it will be next to receive the license, given that other domestic firms such as Shenzhou Taxi and Kuaidi One will be actively applying for it, Uber has shown that it is willing to do all it can to rectify domestic regulator’s problems.

The new license will officially see the private taxi industry become legitimised, and I believe that it is only a matter of time before Uber receives this license.

-- Edited by Adam Courtenay

Neil Flynn is a China watcher based in Shanghai. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

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