Ride-sharing app Uber has expanded around the world at a blistering pace, launching in a new city every one or two days. At first glance, China would appear the ideal fit for the Silicon Valley startup. Most urban residents in the world’s second-largest economy rely on sclerotic local taxi monopolies whose numbers have failed to match the country’s breakneck urbanization: the population of the capital Beijing, for example, has grown by nearly 50 percent to 20 million in the past ten years, while its taxi fleet of 66,000 remains the same size it was in 2003. The potential for a better way to get around town is clearly immense.
But on December 23, Uber suffered a setback when local authorities raided its office in the large southern city of Chongqing, a sign the company may encounter regulatory scrutiny in China similar to what it has encountered in other countries. Uber’s Chongqing travails initially appear to be yet another case in the recent string of large foreign firms finding themselves in the crosshairs of Chinese regulators—often to the benefit of domestic champions. It may come as a surprise, then, that Uber’s local competitors have come in for their share of official scrutiny as well.
Foreign and domestic ride-sharing apps both brush against powerful vested interests here, meaning that app makers, riders, and drivers all need to prepare for a bumpy ride.
China’s ride-on-demand market has been so ripe for the picking that when Uber launched there in February this year, it quickly found itself a small player in a market dominated by existing alternatives. These include “black taxis”—low-tech drivers peddling rides outside of the official taxi system—as well as two domestic taxi-hailing and ride-sharing apps backed by deep-pocketed local Internet firms: Didi Dache (roughly “Honk honk, hail a cab”), which is integrated with social network titan Tencent, and Kuaidi Dache (meaning “Quickly hail a cab”), funded by e-commerce giant Alibaba. (On the same day Uber was raided, the U.S. firm also announced it had secured backing from a third internet giant, search engine firm Baidu, a move that Uber hopes will give it more resources to battle the local players.)
Both Didi and Kuaidi got their start as apps helping riders to hail traditional taxis from the local monopolies, allowing users to entice cab drivers with tips. The apps’ tech giant backers poured money into promotions and bonuses—which included literally paying drivers and riders to use their apps—to drum up supply and demand. The strategy has succeeded; taxi-hailing apps now count 154 million Chinese users. Didi alone boasts 100 million users and 900,000 registered taxi drivers spread across 178 cities, with more than 5 million rides booked every day. Even after a decline following the termination of the major promotions, the apps remain in heavy nationwide use, appearing to vindicate the apps’ early, money-burning tactics.
Having conquered the taxi-hailing market, over the summer both Kuaidi and Didi separately rolled out secondary services for riding in private cars that compete more directly with Uber’s bread and butter. These offerings provide tiers of service, with car models going all the way up to high-end Audis. The private car services are still new, but Didi and Kuaidi and their deep-pocketed backers have made clear they aren’t afraid to spend lavishly on early promotions and subsidies to build the market.
It would appear that China’s ride-on-demand market is Didi and Kuaidi’s to lose.
Those apps’ private drivers are less sanguine. One told me that although business is good, “Didi is still new, so who knows if the government might ban it later?” It’s a line that illustrates the difficult relationship that firms on the cutting edge of business innovation often have with Chinese authorities.
Even before Didi and Kuaidi launched their private car services, their taxi-hailing functions already encountered considerable scrutiny and the occasional bans from city governments for most of their two-year lifespans. That has led to different regulatory regimes in different cities. For example, Didi’s ability to attract cabbies with the promise of hefty tips was still functional on this author’s recent trip to the regional capital city of Changsha, while as of late October, that option had apparently been removed in Shanghai, China’s largest city. Rumors swirled that authorities here were trying to protect traditional taxi reservation hotlines, or were attempting to prize the city’s taxis from the grasp of a smartphone-wielding technorati that had grown used to luring drivers with tips, leaving the elderly and other riders who still hail cabs the old-fashioned way coughing in the dust.
But another theory goes that Didi and Kuaidi removed the tipping function themselves, in order to push well-heeled riders to consider their new Uber-like private car services, which still allow tipping. But private car services also have seen their share of sniping from interest groups and regulators, in many cases well before the December raid on Uber’s Chongqing office. By adding private car services to their existing taxi-hailing functions, the apps have gone from helping traditional taxis secure riders and tips to cultivating competing services that step on the toes of local taxi monopolies, which are often state-owned and constitute influential vested interests. Cab drivers in some cities already have complained that private car services are eating into their business, with cabbies in the large city of Nanjing threatening to boycott Didi’s taxi-hailing app if the firm did not remove the private car function. Local governments have also come down on these native apps on grounds similar to those countries like Belgium have cited in restricting Uber: i.e., the cars act like taxis but aren’t licensed like taxis, making them technically illegal. The large industrial city of Shenyang has already banned the private car service, and others like the major seaport of Dalian have questioned its legality too.
I used Didi to ride with several private car drivers, and found them understandably concerned about a potential ban on their new business. A Shanghai native surnamed Wang drove for Didi’s private car service full time, and was thus most vulnerable to any future regulation. Like all drivers I met, Wang was aware of the potential for a government ban on Didi and its competitors, but called it a double standard, noting the government had “allowed fleets of ‘black taxis’ to operate around Shanghai’s train station and other hubs with impunity for years.” Called “black” because they are illegal, black taxis have been a mainstay of Chinese city streets before smartphones even existed, taking advantage of the surplus demand created by limited taxi fleets. They offer rides to the impatient or desperate for unmetered fares that are bargained on the spot—usually to the disadvantage of those unfamiliar with the city.
If the authorities could turn a blind eye to black taxis, asked Mr. Wang, shouldn’t they be lenient towards Didi’s more professional private car service as well? After all, his clean Volkswagen SUV offered standard Didi features like bottled water and a charging port, and his friendly service and metered fares tallied by Didi’s app added up to a far better experience than that offered by the rundown black taxis with their shady drivers. Wang may have answered his own question.
Since the apps are far better organized and provide superior service, they represent a more significant threat to traditional cabs than black taxis ever could, which has inspired a stronger protectionist response.
Not all drivers were bitter about the threat of government action. One cheerful Didi driver, also surnamed Wang (no relation), came from the city of Xi’an and drove for the app as a lucrative sideline to his day job running a boxed-lunch business for office workers. He acknowledged that his part-time work probably infringed on taxi drivers’ territory and was resigned to the possibility that government action would put an end to it, but he was happy for the extra income while it lasted.
Drivers continue to participate in Didi’s private car service despite the uncertainties in part because Didi pays generous subsidies to drivers who receive high customer ratings, a gambit that echoes it and Kuaidi’s earlier promotions for taxis. (In an attempt to curry rider favor, some drivers even go beyond the app makers’ basic requirements like bottled water, providing extra touches such as medicine for carsickness.) Mr. Wang from Shanghai told me he was earning about $1,600 per month, thanks to subsidies and bonuses, more than Shanghai’s average white-collar salary of about $1,180. Wang’s father had been a cab driver and drove crushing hours, sometimes from 7 o’clock a.m. until midnight or later, without weekends; the younger Wang felt his hours were much easier. Bonuses fluctuate daily, but at their best can let drivers pocket double what passengers pay in fares, with Didi making up the difference. Given that Didi and Kuaidi battled for taxi-hailing market shares earlier this year by literally paying drivers and riders to use their apps, this latest subsidy scheme appears to be an effort to flood the streets with private cars at key times, making the service more convenient in the eyes of riders while also undercutting less well-funded competitors.
Uber may in the future find itself ensnared in more regulatory troubles with local Chinese authorities, but it won’t be alone. Didi and Kuaidi’s private car services have already upset the old system, in which traditional cabs dominated and black taxis mopped up excess demand without providing any real competition. Kuaidi has expressed confidence that it has the market knowledge and official relationships to ride out the initial wave of government scrutiny, though only time can tell if that is the case. In the meantime, drivers and riders can enjoy the services’ financial generosity and convenience—while they last.
Visit the original source and full text: ChinaFile