(Chinese Version)

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On October, 8th, Beijing, Shanghai, Shenzhen and Guangzhou announced draft regulations on online ride-hailing service. Among them, Beijing and Shanghai municipal government said that only people with local residency registrations—called hukou—can apply to be drivers, many industry pundits commented that these regulations were at odds with Premier Li Keqiang’s support for sharing economy and called on local governments to embrace sharing economy instead of curbing it.

Some analysts commented that local governments were treating online ride-hailing platforms as taxi firms and regulating drivers on online ride-hailing platforms as taxi drivers. In a recent report on ftchinese.com, Didi was regarded as a representative of Chinese sharing economy.

As a matter of fact, however, Didi might indeed be more like a “taxi firm” while there hasn’t been much connection between today’s Didi and sharing economy.

At present, Didi’s main services include:

• Didi Taxi: By cooperating with car rental companies in different cities, Didi allows users to hail taxi through its online platform; (not sharing economy)
• Didi Kuaiche/Zhuanche: Kuaiche cars are mostly low and mid-end models, so their charge is also low; Zhuanche cars are mostly high-end, thus they are more expensive. Didi used to be a representative of sharing economy exactly because of these services. However, as it is increasingly encouraging drivers to work full-time and become drivers for the platform, Didi is gradually going away from being a sharing economy platform; (shifting away from a sharing platform)
• Didi Shunfengche: This service is a typical example of sharing economy. However, there’s little evidence suggesting that Shunfengche service is an important part of Didi’s service. It is estimated that Shunfengche service takes up no higher than one third of Didi’s overall service flow. (true sharing service takes up a minor part)

In addition, Didi also provides services such as Didi Bus and Didi Test Drive. However, these services are far from being Didi’s core service.

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As far as I know, there are few drivers who only drive for online ride-hailing platforms as a part-time job. Most drivers pick up riders throughout the day, and driving has already become like a full-time job for them.

After draft regulations were released, Didi responded that among 400,000 registered drivers in Shanghai, only 10,000 drivers have local hukou (less than 3%). That is to say, if draft regulation is to carry out, over 390,000 drivers of Didi will become unemployed and lose the main source of their income.

It occurred to me that most drivers on Didi might work full-time. After all, the ratio of residents with and without Shanghai hukou can’t be as high as 39 to 1. There are only two possible pieces of explanation: residents without Shanghai hukou love sharing their cars (which is of course ridiculous); residents without Shanghai hukou tend to treat driving for Didi as a full-time job.

That is to say, most drivers on Didi’s platform work full time. If so, then Didi will be more like a taxi firm than a representative of sharing economy. However, there are still huge difference between Didi and traditional taxi firms.

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Let’s have a wide guess: how will Didi gradually evolve without government regulations?

It is foreseeable that Didi will certainly expand its driver team more rapidly. However, Didi is fundamentally a light-asset company, so it doesn’t need to burden too much responsibility in the cooperation with drivers. Therefore, it might develop pretty fast.

Since drivers have to bear for the cost themselves, they can’t earn much money at last after all. Now that Didi has already the dominant player in the Chinese online ride-hailing platform, it would certainly gradually stop giving out subsidies both for drivers and riders. Still, Didi’s drivers might be able to earn more money than taxi drivers. However, it’s no longer possible to earn several thousand yuan a month.

Didi only need a small group of employees to take care of daily operation, while the large number of drivers are the very foundation for Didi. However, the relationship between these drivers and Didi is not that between employees and employers. Instead, Didi and drivers team up because they can both benefit from such alliance.

That’s why I believe the production model in Didi is more advanced than that in traditional taxi firms.

As a matter of fact, there aren’t much example from which Didi could learn from. Platforms such as Taobao and Tmall might look like Didi on the surface, but consumers know very clearly that they purchase goods from Taobao shop owners, not Taobao itself. However, Didi’s riders tend to believe they hail cars from Didi and would turn to Didi once they met any conflicts or had any complaints, though Didi, like Taobao and Tmall, is only a platform fundamentally.

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Now that Didi is actually another type of taxi firm, it’s okay for local governments to pose proper regulations against them. After all, the traffic might get really awful without proper regulation against taxi.

It is also a common practice around the world to give priority to public transportation. In countries like the US, Japan and cities like Hong Kong, it is often quite expensive to take a taxi. For example, it might be more expensive to take a taxi from downtown Osaka to the airport than from Shanghai to Osaka. Therefore, most people would go to the airport by bulletin train (Shinkansen) as long as they are in a hurry.

To improve traffic, it’s reasonable that local governments might restrict the development of taxi. Local governments in these four cities might also treat Didi as a taxi firm and curb its development. If we read through the draft regulations, we might find out as if local governments were regulating taxi firms. While taxi drivers must have local hukou, draft regulations released by Beijing and Shanghai municipal governments also stipulate that drivers for online ride-hailing platforms should also have local hukou (Guangzhou is the only exception).

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The general public seems to side with Didi. Likewise, there are also lots of supporters for Uber. This has to do with the actual need for services Didi and Uber provide. Before Uber and Didi emerged, such need wasn’t well satisfied. Thus, there was a gap between taxi and private cars.

This is especially true here in China. It is far from being comfortable to commute by bus and subway as well as taxi. While riding experience in taxi isn’t agreeable enough, taxi price also isn’t too high, especially for first-tier cities, compared to other international metropolis.

This is why people are all crazy about purchasing their own cars. When people can already feed themselves well, they will try to make their lives more comfortable.

However, traffic can be too busy in first and second-tier cities in China since there are already so many cars on the road. Many city governments have already been restricting people from purchasing cars, so that people can’t purchase their own cars even if they could afford doing so.

Didi’s Zhuanche service, however, meet people’s need for comfort. When Chinese online ride-hailing platforms are still competing for the market share, they all rushed to provide subsidies, which also help spread the service to a wider crowd. There was a time when it was even cheaper to hail a car through Didi than a taxi.

Since traffic is so busy in major Chinese cities, many private car owners have to go to work earlier in the morning. However, if they can hail a Zhuanche through online ride-hailing platforms while enjoying the same comfort. They could even take a nap, read through their WeChat friends circle, chat with others or turn to other entertainment.

Bad traffic is a headache for the public and too huge a topic for individuals, but a better riding experience is closely related to everybody. In other words, people might care more if they can go to work more comfortably tomorrow than if they can do something to contribute to a better traffic.

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A better riding experience relies not only on car size itself, but also on drivers’ attitude and other factors. For example, riders’ comments on drivers might also affect drivers’ service quality. Since Didi is only a platform linking together riders with drivers, riders’ comments will directly affect drivers. In the process, Didi is more like a disinterested judge.

Many drivers might complain that Didi cares riders more than them. Yet, it’s reasonable to care more about consumers’ attitudes in the service industry, so it is understandable that Didi might pay more attention to meeting riders’ needs.

To some degree, Didi is like Taobao in the Chinese transportation market, while Didi is more like customer service. Consumers’ needs are attached higher importance to in Taobao, not shop owners. Similarly, riders’ needs are better met in Didi than drivers, who are the real service providers.

The two-way comment system inside Didi not only forces drivers to provide better service, but also riders to be more reasonable and ask for too much.

Compared to taxi, Didi provides additional services such as estimated fare, traceable trip record and a more effective complain channel.

In terms of safety, although there are some incidents, it is not more difficult to hail a car through online ride-hailing platforms than a taxi. To some degree, it is even safer.

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Although there is slight difference among draft regulation in different cities, Didi is basically regarded as a “high-end taxi firm” in all these documents.

However, such positioning is not necessarily a good thing for Didi, because once a product is defined as “high-end”, its market won’t be large enough and it wouldn’t be possible to achieve “exponential growth”.

The following is all major transportation tools (arranged based on price, from low to high):

Public transportation (bus and subway), taxi, Zhuanche/Kuaiche, rented car and private car.

For sure, it’s impossible for the government to shift its priority from bus to other transportation tools, because that’s at odds with the overall city planning strategy.

Still, Didi’s business model is more effective than that of traditional taxi firms. After achieving a certain scale, Didi could also lower its cost significantly.

Thus, my opinion over government regulation on online ride-hailing service is quite clear:

It’s okay to manage online ride-hailing platforms as taxi firms, but proper attention should be attached to both Zhuanche and Kuaiche service. It’s okay to allow only cars with local license plates to provide online ride-hailing service, but it’s not necessary to forbid drivers without local hukou to drive for online ride-hailing platform. Besides, there’s no need for pose too much restriction on car size, since there isn’t much connection between car size and service quality. After all, an A-degree 1.6L car can also provide agreeable riding experience.

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In a word, Didi has already evolved into a taxi firm. However, it adopts a production model that is more advanced than traditional taxi firms, which enables to Didi to develop more rapidly and provide better service.

In terms of user experience, Didi’s service is more an alternative for private cars, since riders no longer need to drive anymore while they can enjoy the same comfort traveling between different destinations. Besides, since location can be traced live and afterwards, it is safe enough to use Didi’s service. Therefore, the wide spread of Didi’s service might refrain people from purchasing their private cars (especially the second) and on the long run reduce traffic as a result.

Thus, it is okay for government to treat online ride-hailing platforms as taxi firms, but not appropriate enough to limit their business to providing merely high-end car-rental service.

Compared to low-end taxi, cars hailed via online ride-hailing platforms such as Didi can certainly be called “high-end”. However, there is still a strong need for comfort among people. In this sense, local governments’ curb on online ride-hailing service might, on the contrary, force people to purchase private cars of themselves, which will certainly worsen the traffic in the long run.

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[The article is published and edited with authorization from the author @Wei Wuhui please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.