INTERNET: Shanghai Paves Legal Way for Uber, Didi-Kuaidi
Bottom line: Shanghai’s announcement of formal regulations for hired car services will finally provide legal status for Uber and Didi-Kuaidi, and will be followed by similar policies in other major Chinese cities.
Just a week after Beijing held a highly unusual meeting of 8 government agencies to discuss the oversight of private car services, China’s commercial capital of Shanghai is sending its own positive signal to this fast-growing group of companies led by US giant Uber and the homegrown Didi-Kuaidi. That signal comes in the form of a newly issued set of rules and regulations that hired car service providers will need to follow to gain formal legal status and remain in compliance with the law. (Chinese article)
This particular move looks incremental but also quite significant, since Shanghai is often considered a leader in developing and regulating new industries in China. In this instance we can probably assume the city was acting under directives from the central government, meaning Beijing has officially decided to support development of private hired car services that compete with traditional taxis. That means we can probably expect to see other major Chinese cities follow soon with their own similar guidelines, ending a period of regulatory uncertainty for Uber, Didi-Kuaidi and other smaller rivals.
At the end of the day, it’s not difficult to understand why Beijing is taking this stance. Many Chinese cities lack sufficient taxi service to serve their increasingly wealthy citizens, with the result that existing taxis provide increasingly poor service due to undersupply. At the same time, China wants to lower the number of cars on its streets, both to relieve congestion and reduce pollution. These private hired car services address both of those issues, since they discourage individual consumers from driving their own cars on city streets. They also have the additional benefit of creating thousands of new jobs.
All that said, let’s take a closer look at the latest headlines that say the Shanghai Municipal Transportation Commission has laid out a roadmap that will allow providers of private car services to obtain formal legal status. (Chinese article) One key provision of the new guidelines will require all operators of such services to have their platforms formally licensed by the city government.
The guidelines are being formally publicized after the Transportation Commission met over the weekend to create a comprehensive policy on the matter. Reports over the weekend indicated the city was determined to find a way for major operators like Uber and Kuaidi to operate legally. At the same time it also wanted to formally stamp out the much larger number of smaller illegal “black car” services and individual private drivers that are much more disorderly and prone to clashes with consumers.
Big Relief
This particular move should come as a big relief to Uber and Didi-Kuaidi, which were raising the wrath of local taxi operators who didn’t like the new competition. Beijing sent its clearest sign to date that it wasn’t going to succumb to pressure from the taxis, when it convened a rare meeting of 8 separate government departments with jurisdiction in the space last week to craft a cohesive strategy to regulate the business. (previous post)
In an interesting separate development that looks possibly related, Uber has just issued a statement denying other media reports that said its China unit was planning a big new fund raising and had authorized others to raise money using its name. (Chinese article) The company has previously said it may spin off its China business into a separate unit due to the market’s complexities, and plans to spend $1 billion this year to grow its Chinese operations. (previous post)
This latest statement looks like a rare form of humility from the usually brash Uber, perhaps in a form of thanks to Beijing and now Shanghai for finally taking concrete moves to legalize its existence. Perhaps it will retain this humble stance for a few months until its future finally gains a solid legal footing. But then I would expect to see it become even more aggressive, as it seeks to provide a much-needed challenge to Didi-Kuadi and especially the traditional taxi operators.
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