China’s ride-hailing market hits a speed bump after subsidies cut, regulations imposed
Didi Chuxing and other ride hailing apps in China are poised for slower growth amid the end of generous subsidies for passengers and drivers
Yu Xinghua, a young man in his 20s who used to work for Uber and now drives for Didi Chuxing – the two major car-hailing and ride-sharing apps in China – is thinking of quitting the industry.
Yu said drivers could earn up to 30,000 yuan a month in 2015 with the companies’ subsidies but now have to work more than 10 hours a day to earn 7,000 to 8,000 yuan per month.
China has become the world’s largest online car-hailing market in recent years, but the development of the sharing economy seems to have hit a speed bump lately, even after the government formally legalised online car hailing services earlier this year.
Many drivers are weighing up whether to quit the industry, amid concerns about pay cuts and unfriendly local regulations, as customers use the apps less frequently because of reduced subsidies and higher prices.
This follows the merger of the industry’s two biggest players, Didi Chuxing and Uber China, in August. In October transport authorities in big cities released strict local regulations on qualifications for vehicles and drivers who provide ride-sharing services.
Next year, the market will likely see moderate growth in terms of daily orders and new users, as the high-water mark for growth appears to have peaked during the last two years, industry insiders and analysts say.
The ride hailing services will also likely experience a drop in the supply of vehicles and the number of rideshare drivers, following the introduction of stricter local rules, Zhang Xu, an analyst at Beijing-based consultancy Analysys International, said.
Up until July, China’s ride-hailing industry was believed to be growing faster than industry insiders had predicted, with billions of yuan being poured into the sector following Apple’s US$1 billion investment into Didi, and a US$3.5 billion injection from Public Investment Fund, a sovereign investment fund owned by Saudi Arabia.
The industry’s prospect were seemingly upbeat in March when the central government liberalised regulations, giving local governments the discretion to allow for competition with licensed taxi drivers within their city limits.
The four major players in the mainland market at the time, including Didi, US-backed Uber, Ucar and Yidao Yongche, had ample funding to expand to new cities and connect with more users, offering subsidies to users and drivers.
Didi announced in July that it processed over 16 million orders a day, compared to 10 million per day in March, making it the second-largest online transaction platform in China. Didi’s portfolio of services include carpooling, shuttle buses, taxi-hailing, chauffeur services and shuttle buses.
Uber and Didi had been fierce rivals at the time, spending billions of yuan to acquire customers and drivers. The result was roughly 21 million rides daily, 16 million from Didi and 5 million from Uber, representing a more than 90 per cent share of the market. Ucar claims its daily orders reached over 260,000 in the first quarter of this year.
In June, only four years since its inception, Didi achieved a valuation of US$28 billion, according to mainland media.
More than 10 million private drivers had been recruited to work within the ride hailing industry across the country, servicing about 400 million registered app users, laying a solid foundation for the burgeoning Chinese sharing economy.
Meanwhile, the development of the sharing economy took a sudden U-turn on August 1 when Uber announced it would sell its Chinese operations to rival Didi in exchange for a 20 per cent stake.
Following the Uber China buyout, Didi passengers have faced higher charges for trips after the company started raising prices and reducing cash subsidies for several services across the country, such as ride hailing and carpooling.
As a result, in the four months since the merger, there’s been little growth in ridership figures.
Didi said it now processes an average of 20 million daily rides from the Didi and Uber China apps, representing little change from its daily average in July.
In addition, in October municipal authorities in cities such as Beijing, Shanghai, Shenzhen and Guangzhou launched tough draft regulations on the ride-hailing industry that seek to cut the number of drivers and vehicles on major platforms, including Didi, by half or more. Earlier this month, the new rules took effect in Beijing and Shanghai, which feature restrictions on drivers’ place of residence, car registration locale, vehicle model and age, and insurance.
“In Shanghai, for instance, less than 20 per cent of existing ride share vehicles meet the proposed wheelbase requirements,” Didi said in a statement. “Of more than 410,000 activated driver accounts in Shanghai, fewer than 10,000 are residents with a Shanghai residency registration.”
Didi spokeswoman Sun Liang said the company is still encouraged by the central authorities’ efforts to legalise the industry.
“China is the first country to legalise car hailing companies…We are seeing some local governments like Chengdu, Shanxi, Guangdong, Shenzhen, relaxing restrictions on the local ride-hailing market after consultation among industry insiders,” she said.
New government regulations against ride-sharing businesses are not just a problem for the mainland market but other parts of the world as well, Sun added.
“We remain optimistic and constantly communicate with local authorities. Ultimately it is about serving users better and to become a pillar of a robust, fluid and sustainable urban transportation ecosystem.”
Sun said technology development and adaption is a priority of the company. Along these lines, she said Didi is seeking to maximise efficiencies among part-time and full-time vehicles and drivers, predict demand more accurately, and achieve real-time and advance ride dispatching.
But some drivers and passengers are unsatisfied with recent developments.
“Last year, both Didi and Uber offered huge subsidies for drivers, up to 50 yuan extra for each ride. It was a really good time for me to earn between 20,000 yuan and 30,000 yuan monthly,” Yu said.
Monthly incomes have declined dramatically without the subsidy, he said, adding that Didi takes about 25 per cent of income derived from each ride.
“Drivers in Shenzhen will get a 70 yuan subsidy only if we finish 28 rides in a day. It’s very hard to fulfil the target. ”
“I will quit the industry. It’s easy to earn 7,000 yuan in Shenzhen by being a bus driver or courier,” he said.
Wendy Liu, 22, a Shenzhen-based resident says there is no longer much of a cost saving when using ride-hailing apps. A taxi ride from her home to her office typically costs 43 yuan, while Didi’s service would have cost 41 yuan, Liu told the Post.
“It’s almost as expensive as a taxi” she said. “Before we thought taxis were expensive because it’s a government-backed monopolistic industry. If the car-hailing industry is about the sharing economy, why does it cost so much? It’s becoming meaningless,” she added.
Beijing-based consultancy Analysys International predicted the size of the mainland’s ride-hailing market would reach 52 billion yuan annually by 2018. “We still think the market will reach the expected size by 2018 or even bigger. The demand is booming because Chinese people are getting rich,” said Zhang Xu, a spokesman for Analysys.
In early December, Didi begun to offer short rides to commuters on minibuses, expanding its ride-sharing service to the public transportation system.