BRAKES ON

The Chinese government just issued a draft law that bodes poorly for Uber

Obsession
China's Transition
Obsession
China's Transition

Over the weekend China’s transport ministry released draft regulations (link in Chinese) that address ride-hailing apps like Uber and its competitor Didi Kuaidi, which currently books some 7 million rides a day across more than 300 Chinese cities. And they don’t bode well for either firm.

The proposed regulations could make China one of the first countries to address ride-hailing at the national level. They could force Uber and Didi to operate much like traditional taxi dispatchers, which could cause them to significantly alter their business models.

Tellingly, the draft makes no mention of zhuanche, the widely adopted Chinese word for a private, for-hire car. It also doesn’t specifically refer to Uber or Didi; instead, it refers to “online pre-booked taxis.” Such vocabulary distinctions matter, and suggest the government wants to reign the two companies into the existing taxi infrastructure.

If enacted, the regulations could significantly restrain Uber and Didi. One article in the draft stipulates that drivers of private cars must already have three years experience driving a taxi in order to qualify as a driver for an “online taxi”—presumably one that is not affiliated with a dispatcher. Another states that “online taxis” must not contain more than seven seats per vehicle, which could affect Didi’s recent launch of a bus-on-demand service.

Another article adds that firms providing online taxi-booking services must register as a taxi company, and register their vehicles as such, much like an ordinary taxi dispatch operation. This will be nothing new to Uber. Local governments and transport bureaus typically place this demand on the company when it attracts regulatory scrutiny for the first time. Uber usually counters by saying it is not a transportation company but an internet company, noting that it owns no fleet of its own.

Other points in the draft reiterate China’s efforts to keep internet companies of all kinds under its own supervision. It states that “online pre-booked taxis” must store their servers in China and share data with local transport authorities, and adds that this data cannot be shared overseas. Uber says it already stores its data for China within the country’s borders, and claims to have obtained a license to operate as an internet company in Shanghai. Of course, per the previous stipulation, that license might not be helpful if the national government considers it an online taxi company.

A Didi spokesperson told Quartz that it remains committed to cooperating with Chinese authorities, adding that the proposed regulations have not yet been enacted. “This draft of the proposed regulation is still at the stage of public consultation. We will give responsible feedback and recommendations to the authorities, after studying opinions and responses from experts, industry players, and most importantly passenger and driver communities,” the company notes.

The restrictive demands of the draft don’t necessarily spell the end for Uber or Didi in China. It’s possible that China’s municipalities would find loopholes and vagaries in national regulations and decide for themselves how to regulate ride-hailing companies. Shanghai is already moving in this direction—on Friday it officially recognized Didi as an internet company providing private car-for-hire services, and Uber says it’s awaiting a similar approval.

If ride-hailing currently operates in a legal grey area in China in the absence of relevant laws, it looks set to remain in that grey area, even as new national laws possibly come forth.

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