Didi and Uber facing big challenges with new Chinese regulations

Less than half a month after Didi confirmed a new round of financing that might surpass USD 1.5 billion, Didi, and also its rival Uber, are facing a new challenge. This time they have more to be concerned about than simply figuring about how to stop burning cash and breaking even.

Constraints of upcoming government regulations

On Wednesday, the Economic Information Daily, a newspaper managed by China’s state-run Xinhua News Agency, cited someone with inside knowledge that said the new set of regulations for the ride-hailing business are to be released in May by the Chinese Ministry of Transport. The regulations have been open to public submissions since last October.

The source predicts that platforms that mainly cooperate with private car drivers such as Didi, Uber and Yongche.com, will experience a rather hard time under the new regulations, especially with the provision that private car owners who work with these platforms must obtain operating permits for taxis. If enacted, many drivers will withdraw from the business, for once a car is registered for business operations, it would have only eight years of use, under the standard of the mandatory scrapping of motor vehicles by the state.

Even before the regulation come out, problems with these platforms have been brewing. The Transportation Commissions of Shenzhen and Guangzhou have conducted interviews with major car-hailing platforms, warning them about how their lax qualifications inspection of drivers threatens the safety of passengers. The pressure from local governments is coupled with constant resistance from taxi drivers and companies that complain the platforms obstruct fair competition with low prices and subsidies.

With subsidies dwindling, drivers are getting more and more unsatisfied

Last Friday, Didi and Uber drivers went on strike in Beijing. They chose Friday, a day when citizens are in greater need of their services, to stop receiving orders in order to publicize their dissatisfaction with Didi and Uber.

The slogan of this strike was reported to be “rejection of cheap labor and objection to high commissions(by the platforms)”. Obviously, drivers, who were drawn to this business by the appealing income from the beginning, are getting unsatisfied with the ever-decreasing subsidies.

According to The Economic Observer newspaper, Didi has cut its subsidies for drivers by half in the past four months. In January, drivers for Didi’s express car service were rewarded RMB 100 for 12 orders and RMB 200 for more than 21 orders. As of last Friday, that reward has shrunk to RMB 40 and RMB 90. With more and more drivers joining up, the number of orders for each driver has been decreasing. A driver disclosed to the newspaper that his monthly income had dropped from over RMB 10,000 to around RMB 4,000.

Additionally, platforms have been trying to gain profit by getting a cut from their drivers. Zhu Jingshi, Didi Chuxing’s VP of Strategy, said this month in a press release that Didi has been gaining profit in many cities, and is breaking even in close to 300 of the 400 cities they operate in.

The contradiction here is, drivers are dissatisfied with their low income, but passengers will stop using the app if the fares are too high. So how can these platforms gain profit?

(Top photo from i.st001.com)

Originally published at allchinatech.com on April 21, 2016.