Article / 15 July 2015 at 0:04 GMT

Ride-share disruption eases China's chronic congestion

China Watcher / Shanghai
China
  • Ride-sharing has grown as traffic condition in China's big cities worsen
  • Dida Pinche has come into the market, to take on more-established rivals
  • Ride-sharing apps are a disruptive model - unwelcome but necessary

By Neil Flynn

Over the past few months, a new app has become increasingly popular in China called Dida Pinche (嘀嗒拼车), which allows users to find a ride-share.

Although taxi-hailing apps have become an essential part of life in China over the past 12 months, the one problem that they all have is that during busy times, it’s difficult to find a driver, particularly one that won’t charge double the fee.

Hailing a taxi off the street has since become much more difficult, as taxi drivers would prefer to know where the passenger wants to go, before deciding whether or not it’s worth their while to take the fare.

These factors have led to the growth in ride-sharing, where drivers can take a fare from a passenger that is also going in the same direction. The US has Lyft, and now China has Dida Pinche. As with most new O2O apps, Dida Pinche has been offering users discounts for using the app, in order to grow market share.

Just to put this into context, a journey that would usually cost RMB 20 during rush hour after work typically costs RMB 18 without a discount, but as the app is offering regular discounts, the same journey can be anywhere between RMB 0.5 and RMB 10.

Dida Pinche’s interface
Dida's app

Source: Dida Pinche

The growth of this app has not gone unnoticed by China’s industry leader. Didi-Kuaidi began as a taxi-hailing app, which allowed taxi drivers and passengers to connect via smartphone. But as Uber’s private car service grew in China, Didi reacted by offering a rival service to stave off competition.

So it comes as no surprise that as the ride-sharing industry is showing strong growth potential, Didi has launched its own service. Although it was still unavailable as of the time of writing, it should be launched by the end of the month.

Last week, the company announced that its latest round of financing had raised $2 billion, which gives the merged entity of Didi Dache and Kuaidi Dache a valuation of $15bn. With cash reserves swelling to $3.5bn, it is thought that Didi-Kuaidi is looking to enter into the US market, although no comment has been made from the company.

The growth of the driver apps is very curious in China, because the government had previously taken a strong stance against Uber’s unlicensed taxi drivers, but has since been relatively quiet about the industry, as domestic giants grow their presence.

xxx
 Bumper to bumper: Beijing was never properly designed for cars. Photo: iStock

The Tencent-backed Didi Dache and the Alibaba-backed Kuaidi Dache merged earlier this year, and have expanded away from the core taxi hailing business into ride-sharing and private cars, and a new range of private car hire apps have been launched to provide competition for both Didi-Kuaidi and Uber.

Ride-sharing presents an issue for Chinese lawmakers, who are keen to regulate this new breed of taxi and ride-sharing apps, whilst also wanting to reduce traffic and related pollution in major urban areas. Having lived in Shanghai for several years, I can say that traffic during rush hour is a major problem, but fortunately it is not as bad as Beijing, which is fundamentally a badly designed city for cars.

The government has been keen to reduce traffic and pollution over the past few years, and has implemented certain policies such as Beijing only allowing cars with a certain letter in their license plate to drive within the city centre on certain days, and Shanghai banning non-local cars from using the highway.

The problem is that these policies have had varying levels of success, and cities have been forced to enact stricter policies. The south-eastern city of Shenzhen, which is 20 miles north of Hong Kong, has announced that it will limit the number of license plates that it issues every year to 100,000, despite having 500,000 license applications in 2014. Although these measures will help to reduce traffic and pollution, it will also increase the number of people that require transportation, and will thus grow the demand for ride-sharing apps.

Traditional taxi drivers will complain that ride-sharing apps are taking away their business, but the Western argument applies to China: if it’s easier and cheaper to find a ride-share at busy times, then this disruptive technology is beneficial for society as a whole.

-- Edited by Adam Courtenay

Neil Flynn is a portfolio manager at Alcuin Asset Management. Follow Neil or post your comment below to engage with Saxo Bank's social trading platform.

3y
fxtime fxtime
Didn't Italy try similar traffic controls by using odd number plates were allowed on the roads on one day the following day it was even numbers so the Italians simply bought an extra car to ensure they could drive to work. Equally they too tried to control number licences as you suggest above so the second hand market for licence plates rose and eliminated the local authority constraints...I suspect China will have the same issues. I am amazed at the fund raising sums for basically taxi servicing !
3y
Neil_Flynn Neil_Flynn
Whether or not the Beijing license plate regulation is still in use, i can't remember, however i know that as soon as it was implemented, it wasn't adhered to at all. The Shanghai regulation is in use, but it's rarely adhered to. I do believe that the Shenzhen license plate issuance limit will be successful at reducing traffic, however, they are selling the plates via auction, which of course will just favour the wealthy. The problem is that when people sell their car in order to purchase a new one, they will simply take their old license plate and pay for it to be transferred to their new car. But this will stifle the second hand car market, because it's likely that those buying a used car won't be able to afford a license plate. We'll probably find that new car purchases will decline simply because people can't sell their old car

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail