Ride-hailing (also referred as car-hailing), a newborn industry emerged from the end of last decade, has been growing since this decade. The pioneer and the industry model, Uber, was founded in 2009, which is actively preparing for the initial public offering with the newest market value at approximately USD 90 billion. In 2010, China’s first ride-hailing company Yidao (易到) was founded and soon the other startups joined in following years. The competition in ride-hailing industry is as intense as any other newborn industries, players eager to dive in the blue ocean and, indeed, the first comers have advantages while the latecomers have to struggle through their ways out in a red ocean – first comers take most of the market share.

The rule and legislation process for the new industry took time. In order to wait for the industry to grow more mature and expose enough problems, the most important policy regarding the formalization and regulation of ride-hailing industry, Specification for App-based Ride-hailing Operation Services, was issued in 2016, which was six years after the first ride-hailing company founded. By the date the article published, 31 car-hailing-related policies, rules, plans, and other topics are released on government page within the last six years.

The booming of the car-hailing industry did not start until 2013. In 2013, the intense competition among ride-hailing companies aroused the public’s attention and brought more flows into the industry, be it the customers, startups, or investors. Comparing to 2012, the growth of customer pool increased at a rate of 220.0% in 2013, and the number increased to 559.4% in 2014. After 2014, the growth rate dropped sharply in 2015 and gradually slowed down to 19.2% in 2017 and was expected to be 11.6% in 2020.

Since 2013, the Ministry of Transport of the People’s Republic of China (MTPRC) and the State Council of the People’s Republic of China (SCPRC) started to mention “Ride-hailing” in press conferences and government documents. The fast-growing newborn industry pushed the government to accept its existence and changed the way that people used to think since taxi is a critical part of public transportation which is strictly regulated by the state. Ride-hailing, as a competitor of taxi, functions like a taxi but with more flexibility. Some originally thought that ride-hailing would not be able to survive in China since the government’s strict regulation might prohibit the industry to live or grow. Nevertheless, fast growth represents the need of people in transportation and ride-hailing has satisfied the need as a supplement instead of a substitute for taxi. Currently, ride-hailing service is assigned to be a category under taxi and all laws and rules applied to taxi can be applied to ride-hailing.

2013 – the First Exposure

“Actively promote the development of taxi phone reservation service, ride-hailing, and other means that can offer convenient services for citizens”, said the Vice Minister of MTPRC in 2013’s Chunyun conference call in January 2013.

This is the first time that ride-hailing was mentioned in an official document. In 2013, the customer size of ride-hailing industry reached 30 million, which tripled the size in 2012. Yidao’s ride-hailing business used car rental companies’ cars and drivers to provide ride-hailing service. KuaiDi (快的) and DiDi(滴滴) were born in 2012 and they used taxis for their car-hailing service. Besides the large base and quantity of the ride-hailing service provider, KuaiDi and DiDi both swiftly took over the market by subsidizing ride-hailing drivers and customers when they started to receive venture funds.

In June and October, the MTPRC published the advice and an official document. In both publications, ride-hailing was mentioned and encouraged to effectively serve the public transportation system by reducing the passenger-less taxi rate. Rules and policies targeted at formalizing or regulating the new-emerged industry were yet to be discussed. 2013 is a growing year for the industry.

2014 – Rules Come

“To adapt to the fast-changing trend of new forms such as app-based ride-hailing, phone reservation, and other means to enjoy taxi service, to maintain the market order of taxi market, to elevate the taxi service quality service, and to promo the healthy development of taxi market, the Office of the Ministry of Transport of the People’s Republic of China is authorized by the Ministry of Transport of the People’s Republic of China to announce followings:…” wrote in the Office of the Ministry of Transport of the People’s Republic of China’s [2014] No. 137 document.

No. 137 document was released in July and aimed at formalizing and encouraging the growth of the taxi market through new forms like mentioned above. 2014 is a year that firmed the foundation of future development of DiDi. In January, DiDi closed its series C financing in amount of USD 100 million led by Tencent, which was seven months after its series B financing in amount of USD 15 million led by Tencent; KuaiDi received  its first financing in April 2014 of an amount in millions of dollars (actual amount is not disclosed) from Alibaba and Matrix China (经纬中国). Two top players both raised twice in 2014: DiDi raised a total of USD 800 million and KuaiDi raised over USD 110 million. In the same year, Uber China was founded and as well as other startups came in bundles. The competition was pushed to the first climax.

The subsidy war between DiDi and KuaiDi was intense in 2014. According to CITIC Securities (中信证券), DiDi compensated subsidies in an amount of CNY 1,400 million (USD 207.8 million) and KuaiDi compensated subsidies in an amount of CNY 1,000 million (USD 147.7 million) by May 17th. In total CNY 4,000 million (USD 590.8 million) was splurged by the two companies in the subsidy war throughout 2014.

Thanks to the subsidy war, the consumer base increased steeply from approximately 30 million to 210 million within a year. The subsidy plan drew both drivers and passengers to DiDi and KuaiDi’s app platforms within a short period of time. In CNNIC’s analysis, DiDi and KuaiDi’s users’ loyalty was the highest during 2013 – 2014: the utilization rates of DiDi and KuaiDi were 74.1% and 50.2% respectively while other ride-hailing apps’ were below 7% during the research timespan. According to iResearch, DiDi’s market share was approximately 68.1%, KuaiDi was approximately 30.2%, and the rest were 1.7%.

The aggressively growing market aroused the state’s attention, and in the middle of 2014, the state published the No.137 guidance document and keenly paid close attention to the industry. The emergence of ride-hailing industry started to change the taxi market. Since ride-hailing is not limited to taxi drivers but also home-use car drivers. The joining of home-use car’s drivers had become an important source of DiDi and KuaiDi’s ride-hailing services and this situation started to complicate the regulation for both the app platforms and government. After the first guidance document, another MTPRC’s official document published in October, the 14th order of MTPRC. The guidance and the order aimed at regulating the administration of the taxi market and prompting new forms of side services (including ride-hailing) to assist the development of the taxi market.

2015 - The Acquisition

After burning millions of dollars in 2014, DiDi and KuaiDi reached an agreement. DiDi acquired KuaiDi in February and ever since DiDi became the largest ride-hailing company. 2014 might be regarded as the year of DiDi and KuaiDi, but 2015 was a year for DiDi and Uber China. Uber China as a brand founded by the most experienced ride-hailing company in the world faced the most intense competition in the year it founded. The competition burnt millions to open the market and acquire users with financial backups from Tencent and Alibaba.

Uber China, as a latecomer and also an invader at that time, was financially supported by the only one left in BAT (China’s three giant internet companies with strong tech background: Baidu, Alibaba, and Tencent), Baidu. HNA Capital (海航资本) and Baidu co-invested in Uber China in series A with over millions of US dollars. Though coming late, Uber China was backed up by a giant and had the Uber brand, which can bring it trust and reliability, DiDi cannot ignore a potential competitor in this market.

The growth of the market was at a YOY rate of 39.3% and the customer size reached approximately 290 million, while the size of the population in the U.S. in 2017 was 325.7 million. DiDi’s market share was 80.0%, Uber China was 12.6%, UCAR (神州专车) was 5.3%, and the rest were 2.1%. The enlarged market had started to reshape the original taxi market and Uber-related news from abroad stirred up the comments about ride-hailing services. In 2015, French taxi drivers protested against Uber and the protest brought Paris into chaos. The crash brought by ride-hailing to the taxi market had caused varied reactions in worldwide: some accepted it and some banned it.

China chose to let the market reveal how ride-hailing could develop instead of actively intervening or ignoring it. In October, the MTRPC proposed to deepen the reformation in taxi’s administration mechanism. The proposal suggested to monitor the change brought by ride-hailing, to do on-spot research about ride-hailing thoroughly, and to assist the taxi market to grow and serve public transportation system better. Citizens’ demands of diverse transportation means they should be satisfied.

2016 –2018 Formalization

Comparing to the only proposal in 2015, policies and regulations published in clusters in 2016. In the second half of 2016, at least 11 official documents were released. The high frequency of government’s documents published could be regarded as the move that the state determined to regularize and formalize the ride-hailing industry. The trigger of government’s action is the homicide which took place in May 2016.

A woman was murdered by the driver while using DiDi’s Shunfengche (顺风车) service. The case astounded the nation and exposed the hole in ride-hailing industry’s administration. Rules had been published but not implemented thoroughly. The loss of life aroused attention from top to bottom. Two documents released in June specified several things: ride-hailing is administrated by MTPRC; ride-hailing platform needs to be licensed to provide platform service; vehicles are quired to registered as taxi at the local office; drivers must obtain ride-hailing driver license to offer ride-hailing services; vehicles must retire from ride-hailing if satisfies either the mileage reaches 600,000 km (33,000 miles) or used age is over eight years.

The Specification for App-based Ride-hailing Operation Service (网络预约出租车运营服务规范) was published in October 2016. The Specification pointed out the subjects that could be applied to the Specification and specific requirements for drivers, vehicles, ride-hailing platforms and the standard of service. Ride-hailing’s entrance has become similar (might be equivalent) to taxi’s entrance. Since October 2016, cities in China subsequently published rules for regulating ride-hailing industry and these rules are effective until now. Some cities require that ride-hailing driver must be local resident while some do not; some cities make restrictions in the distance between shafts; some cities have a bottom line for vehicle emission.

While the MTPRC frequently published regulatory documents, DiDi purchased Uber China in August 2016, which solidified the status of DiDi in ride-hailing industry. At the end of 2016, ride-hailing’s customer base expanded to 370 million. In 2017, DiDi’s market share grew to 92.5%, Yidao was 4.3%, UCAR was 3.1%, and the rest were only 0.1%, while the customer base had grown to 440 million at a YOY rate of 19.2%. With the implementation of strict regulatory rules, the ride-hailing market kept growing at a steady speed, which could be interpreted as the citizens’ need for transportation means’ diversity and the demand for public transportation system’s improvements. How to satisfy citizens’ mobility needs while maintaining the industry to develop healthily is the primary concern for the state to regulate the ride-hailing industry nowadays. In 2017, the MTPRC released three official documents related to ride-hailing industry.

In the Paper’s (澎湃新闻) observation, 246 out of 297 cities, which is 82.83% of the total, have published ride-hailing industry regulatory policies by the end of October 2018; the number at the end of 2017 was 203 (68.35%), so another 43 new cities published ride-hailing policies during the past year. Comparing to 2017, 10 documents were published by MTPRC regarding the development and the regulation of ride-hailing industry and one announcement co-published by nine divisions about the co-regulation of ride-hailing from finance, tax, cybersecurity, and other perspectives.

Two more homicides occurred in 2018 at DiDi’s Shunfengche platform urged the state to deepen the regulation of ride-hailing drivers’ background and to follow up other regulatory works. The background check posts more costs for ride-hailing companies but it is necessary for the safety of both drivers and passengers. Since August 2018, DiDi shut down their Shunfengche service and put more resources in the security area. Previously, as reported by EqualOcean, DiDi’s massive delay and loss incurred in 2018.

Summary

The growth of DiDi witnessed the change of the government’s attitude and regulations of the market - from encouraging to becoming strict. In Deloitte’s analysis, the ride-hailing industry in China will be more formalized in future, and the topper the tier the city is, the stricter the regulations will be imposed, for instance, top-tier cities like Beijing and Shanghai will have the strictest ride-hailing rules. As a critical component in the public transportation system, ride-hailing has become a part of our daily life. The growth of ride-hailing urges the completeness in the regulatory system and inversely, the regulatory system impacts the development path of ride-hailing – at least, it changed DiDi drastically. Inversely, DiDi and other players in the industry have affected and changed regulation and administration from central to regional radically.