Both Uber and Didi Kuaidi follow the model of raising a ton of cash, only to burn a significant chunk of it subsidising drivers
On the same day the Indonesian Minister of Transportation Ignasius Jonan responded to protests from the traditional taxi industry by signing a recommendation to ban ride-hailing apps, his Chinese counterpart hinted that Asia’s largest economy is on a path to legitimise the industry.
China’s Transport Minister Yang Chuantang told media on Monday, “We should not cease to advance for this new innovation; we should issue it a legal status and let it match the public’s demand,” as first reported by the South China Morning Post.
The new innovation he is referring to is ride-hailing applications such as Uber and Didi Kuaidi.
Nothing official was laid down today but the Minister told media in Beijing that it was drafting regulations according to public opinion polls taken last year.
The draft regulations are a response to aggressive protests in various Chinese cities that left property damaged, motivating the Chinese Transport Ministry to launch an initiative to regulate the industry in October 2015. This is what lead to the public consultations Yang mentioned above.
However, while fans of the ride-hailing industry can rejoice, the Minister made a comment that will not please major players and may restrict the industry via simple economics.
“The subsidies [to commuters and drivers] by ride-hailing firms are aimed at occupying more market share within the short term and is competitively unfair for the taxi industry. It is unhealthy and cannot be sustained in the long term,” Yang said.
Yes, giving ride-hailing apps a ‘green-light’ would go a long way to preventing inconsistent or reactionary rule changes seen in other countries, but striking down subsidies would be a disaster for both Didi Kuaidi and Uber.
Both companies have raised immense rounds at sky-high valuations, but burn a ton of cash in order to subsidise drivers to get as many cars on the road as possible.
In late February, Didi Kuaidi reportedly raised US$1 billion which upped its valuation to US$20 billion and at the moment it is winning the battle for China’s ride-hailing market share. It operates in 400 cities as compared to Uber, which plans to be functioning in 100 cities by the end of 2016.
Uber China in January raised more than US$1 billion, to bring its valuation to US$7 billion (Uber as a whole is valued at US$62.5 billion), but it is not profitable and CEO Travis Kalanick made waves earlier this year when he said the company was spending around US$1 billion per year just to stay in China.
Uber China is separated from Uber in part because of current regulations on the industry. The app must pass China’s stringent security requirements, place servers within the country and follow the pricing structure from the government. Yang would not comment if Uber is actually legal in China today.
No specific timetable was mentioned about when the official rules would come into effect.
The post Chinese authorities hint at green-light for ride-sharing apps; with a major stipulation appeared first on e27.
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