The following article is reprinted with permission from Redtech Advisors.
Waiting for these rules is taking longer than a Beijing traffic jam. This latest bit of media speculation suggests that cars and platform companies must have licenses; drivers must have work licenses; and that private cars entering the market must be re-designated as commercial.
Once becoming commercial vehicles, a private car should be scrapped after eight years of use to conform with industry rules. Also, to implement differentiated services, the tariffs for these taxi apps have to be 50% higher than general taxi pricing. One industry observer said few drivers would be willing to scrap their cars earlier only to make a small amount of money from car hailing services. (Chinese link)
The speculation comes on the heels of an announcement by Uber that it will double the amount of Chinese cities it plans to reach within a year. Originally targeting 50, it will go for 100 instead. Uber CEO Travis Kalanick visited China last week and, naturally, said he is optimistic about the forthcoming taxi service standards. He cleverly noted that regulators must accommodate innovation while the innovators must respect “harmony and stability” – buzz words often used by government officials when talking about China’s development.
But increasing Uber’s goal to 100 Chinese cities may be more bombast from Kalanick – 50 is already a mighty challenge in terms of getting the management talent to replicate Uber’s success in the first 20 or so that it operates in. In Uber expands presence in smaller cities, we noted that Uber recently turned in impressive MAU growth in Tier 2 cities, but it may have come at the cost of growth in larger cities. In cities like Guangzhou and Shenzhen, where Uber has more premium car users than Didi, its growth lagged.
But the pressure is on. A recent FT piece noted that aggressive subsidies in China are costing Didi and Uber more than $1bln a year. “Didi recorded a $305m loss in the first five months of 2015 while Kuadi lost $266m. If this combined net loss of $571m continued at the same rate it would have produced an annualised loss for the combined company of $1.4bn.” (English link)