Uber, Didi Armed With Billions Hold Breath on China Regulations

  • Uber CEO Kalanick says it wants to be good partners in China
  • Didi says sharing economy offers solution to China's gridlock

Tom Teng has been driving part time using the Didi Kuaidi car-hailing app and finds the service a boon for car owners like him who want to supplement their income. His greatest fear, though, is being pulled over by police and fined for carrying out an illegal activity.

“I worry all the time about being caught and fined by the government,” said Teng, 38, who runs his own interior decoration business in Beijing. “My biggest concern is policy uncertainties. I wish there are clear signals soon.”

Uber Technologies Inc. and Didi Kuaidi are close to raising more than $4 billion combined from investors for their China operations in the latest fundraising rounds, according to people familiar with the plans. Despite being loaded with cash and armed with plans to expand into dozens of new cities, the companies continue to operate in an ill-defined area when it comes to enabling privately owned cars to provide paid transportation, an activity confined traditionally to licensed taxis and rental companies.

Both Uber and Didi have repeatedly pledged to operate in accordance with regulations while lobbying the government to update rules to reflect commuter habits that have changed with the sharing economy. After launching periodic crackdowns on unlicensed car-hire services, the central government is now working on nationwide rules on Internet-based transportation booking services.

“The biggest uncertainty for these companies is how well they are able to comply with the upcoming regulations by both the central and local governments,” said Huang Shaoqing, an associate research fellow at Shanghai Jiao Tong University, who was involved in the drafting of the car-booking regulations. “The regulations directly determine their legality so it’s very important.”

A potential scenario includes the government requiring car-hailing companies to own at least part of their fleets, which will increases costs, while local governments may also introduce specific rules in addition to the national framework, according to Huang.

Uber and Didi Kuaidi also have to be mindful of how the government views the disruption to taxi companies, and whether their use of subsidies to attract drivers and win over customers may be viewed as an unfair practice, Huang said. Having a lot of cash reserves allows the companies to be better prepared to meet whatever regulatory requirements the government imposes, he said.

Didi Kuaidi President Jean Liu said the problems of commuting in Chinese cities have created a “common language” between the company and government officials, who understand that congestion reduces the efficiency and competitiveness of a city.

The sharing economy, as represented by Internet-based technologies such as hailing apps, gives regulators a solution to urban gridlock by more efficiently allocating transportation resources, Liu said in speech at a forum on Monday.

Uber Chief Executive Officer Travis Kalanick made clear the company wants to be good partners in China, creating jobs and cooperating with the government. He called Uber “co-architects in making cities of the future” in a speech at a conference in Beijing Tuesday for its role in helping ride-sharing and decreasing congestion.

He also emphasized the importance of government relations and compared hailing apps to the early days of taxis, where there were no rules and governments stepped in later to regulate the industry.

“We have already created hundreds of thousands of jobs,” Kalanick said, adding that Uber plans to operate in about 100 more Chinese cities over the next year. “As we grow, that will become millions of jobs.”

Like Uber, Didi Kuaidi is banking on becoming too big and important to be shut down.

Liu said that Didi Kuaidi now handles 7 million car and taxi bookings a day and have signed up about 9 million drivers. The company plans to continue and upgrade its different services, she said.

“Didi Kuaidi and Uber are like Taobao,” said Fu Weigang, a researcher at SIFL Institute in Shanghai, referring to the online marketplace operated by Alibaba that has been credited with enabling small-time businesses. “They are an essential platform that millions and millions of people count on. No matter what the policy framework, they will find their way.”

— With assistance by Tian Ying, and Tim Culpan

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