Strict Rules Could Choke Ride-Hailing Industry, Experts Say

(Beijing) — Tougher rules that limit migrants from offering rides on online ride-hailing services would drive them into the unlicensed "black taxi" market, experts said.

At least 10 major cities, including Beijing and Shanghai, issued draft rules in recent weeks that require drivers registered with online ride-hailing services such as Didi Chuxing and Uber Technologies Inc. to have a local household registration or a residence permit that can be obtained only after paying taxes for years. Vehicles used to pick up passengers must also meet rigid technical standards, the guidelines said.

But strict regulations will force migrant workers, who constitute the majority of drivers, out of the industry, said He Xia, a senior engineer at a research institute under the Ministry of Industry and Information Technology. He made the remarks at a Peking University forum on Monday.

In response to the strict draft rules, Didi Chuxing said that if the rules are enforced, it will significantly shrink the pool of drivers and vehicles available on popular ride-sharing apps and push up costs. In Shanghai, less than 2.5 percent of drivers registered with Didi were local residents, the company added.

"This will also inevitably lead migrants to driving unlicensed cabs, which would be even harder for the government to regulate," He said.

For years, authorities have tried to crack down on private cars that pick up passengers for a fee, as many lacked third-party insurance and posed a safety risk to passengers. There are no recent estimates on the number of these "black taxis" in major cities, but they are a common site near airports, train stations and on the outskirts of cities where public transport is scarce.

"What can I do?" said 27-year-old Li Aqiang, a Didi driver who moved to Beijing at the beginning of the year from Henan province. "I might just continue providing services without a license."

Hundreds of thousands of migrants flocking to cities to drive for ride-hailing services has fueled a rapid growth in the sector. Requiring drivers to have a local household registration or residency permit has been seen as a move to curb the growing tide.

But "trying to use ride-hailing policies to solve overpopulation (in cities) is ridiculous," said Zhang Weiying, director of the Center for Market and Network Economy of Peking University.

In response to the concern that ride-hailing companies may make traffic worse in cities, Fu Weigang, executive director of Shanghai Institute of Finance & Law, said that the market can reach equilibrium without government intervention.

Amid growing concerns that tough rules could strangle the nascent industry, Premier Li Keqiang told tech leaders, including Apple Inc. CEO Tim Cook — a major investor in Didi — at a meeting in Shenzhen last week that the central government "will ask cities to carry out an in-depth analysis and listen to the views of all parties," the state-run People's Daily reported.

Contact Chen Na (nachen@caixin.com); editor Poornima Weerasekara (poornima@caixin.com)