Didi Chuxing and Uber, Popular in China, Are Now Legal, Too
HONG KONG — Ride-hailing services in China have attracted billions of dollars in investments. They have pulled in money from some of the world’s largest tech companies, like Apple and Alibaba. They have become a crucial road test for one of America’s best-known start-ups, Uber.
On Thursday, they finally became legal.
In a new law announced by several regulators, China’s government gave the thumbs-up for ride-hailing companies like Uber and its Chinese rival, Didi Chuxing, to operate in the country. The law clears up regulatory uncertainty and lays out a new framework under which ride-hailing companies can operate in the country.
Uber and Didi have upended China’s taxi industry by allowing drivers to take passengers in private vehicles with the help of hugely popular apps. Despite investments in technology, marketing and subsidies, both companies had operated in a legal gray zone, with drivers occasionally being detained by the police.
Strict government rules have repeatedly tripped up local and foreign internet companies in China. Yet in the fast-moving Chinese tech industry, an “invest first, get approval later” model has prevailed. For Uber and Didi, it appears that ethos has paid off.
Analysts said the new law, which will take effect on Nov. 1, signaled a step back from earlier, stricter proposals. According to the rules, drivers must have three years’ experience, be licensed by a local taxi regulator and have no criminal record. Cars with more than 600,000 kilometers, or about 370,000 miles, on the odometer may not be used.
Drivers were divided on what to make of the new rules. On one hand, they said in a chat group, it was a relief to see their job permitted by the government. On the other hand, the finer points of the law were unclear, leaving open questions like whether cars licensed outside Beijing would be allowed to take fares in the city.
In an interview, a 31-year-old driver with the surname Liu, who did not give his full name because he was not authorized to speak on behalf of the ride-hailing services, pointed out that the law did not address other concerns; many drivers have seen incomes cut nearly in half recently as Didi and Uber have reduced subsidies.
That has been more painful to drivers who bought cars to take advantage of the big bonuses that had been offered. One man, Wen Zhenjiang, 37, quit a job driving Coca-Cola trucks from Beijing to the western city of Xi’an and bought a Volkswagen to start driving for Uber and Didi.
“I will see how much I can earn,” Mr. Wen said. “If I can’t earn much, even if it’s legal now, there’s no point in doing it.”
He added that he thought many drivers would fail the licensing process and that he was wary of the GPS tracking devices the new law says must be installed on their vehicles as a safety measure. Similar devices have led to limits on how much time drivers can spend on the road in trucking, he said.
“I know the tracking devices,” he said. “Once you install that and drive more than eight hours a day, you will be fined, and your company won’t pay the fine.”
Experts said there was nothing in the law to validate Mr. Wen’s concerns.
Uber and Didi issued statements welcoming the regulation. In a note from the senior vice president of corporate development for Uber’s Chinese arm, Zhen Liu, the company said it was “regulation-ready” and would be working with local authorities to put the regulations into practice.
Didi said its drivers would begin applying for local licenses. Didi’s statement praised elements of the rules, like the fact that ride-hailing companies will be allowed to set their own prices.
Calling the new law a “milestone” for China’s sharing economy, Wu Shenkuo, a Beijing Normal University law professor, said he did not see any evidence that the law would specifically take aim at foreign companies. Still, he said, the companies must take care to comply with the rules, which will be put in place locally.
“Companies need to adjust to the new law, especially in terms of applying for licenses, screening drivers and equipping cars,” he said, adding that the law creates a model as China seeks to regulate new internet-based industries that conflict with existing businesses. Taxi drivers in China have held mass protests over ride-hailing apps, which they say are unfair competition.
“From what I can see now, it is very likely that companies will give out less subsidies, raise the rate up for car-hailing, and as a consequence, there might be fewer part-time drivers,” he added.
While Uber remains in the middle of a brutal pricing competition with Didi, which has more of the market, the rules to some degree validate the American company’s willingness to flout regulations in new markets.
Uber introduced the ride-hailing model to China. Putting ordinary Chinese behind the wheel of pay-to-ride vehicles led to occasional run-ins with the police, but it also won customers before Didi, which began as an app for flagging taxis rather than private cars, adjusted to the competition.
If Uber does not face difficulties in obtaining licenses from local taxi regulators, it will become the first major American internet company in recent years to break into China in a dominant way and get official approval. Even so, it faces tough competition from Didi, which not only has support from the Chinese internet giants Tencent and Alibaba, but recently gained a powerful new backer in Apple, which invested $1 billion in May.