Uber Facing Regulation in China: When the Sharing Economy Cuts the Communist Cake
Despite the taxi-hailing app’s surging popularity among China’s younger generation, like many “sharing economy” companies, Uber does not escape the fate of being regulated in the world’s most populous market.
The company’s Guangzhou and Chengdu offices were reportedly inspected by local law-enforcement authorities on April 30th and May 6th, 2015 respectively. The levels of severity were different, however. The visit in Guangzhou was described as a “raid” with seizure of several mobile devices, as officials announced that, “organizing private drivers to provide unlicensed car-hire businesses” is illegal and put the company under further investigation. Yet the regulatory troubles did not seem to interrupt Uber’s overall business. In spite of the temporary suspension of the off-line driver specific app platform and decrease in number of affiliated drivers, the company’s operations went back to normal one week after the raid.
The inspection in Chengdu was not quite as severe. According to the local transport authorities, the visit was “routine” and for the purpose of “collecting information.” There were no disruptions to the Uber platform regarding its usual operations, according to an Uber spokesman. Uber also pledged to be cooperating with local officials and complying with the investigation process.
The controversial relationship with regulatory departments – worldwide – is no new issue for Uber in China. Nor does it seem to be targeted at Uber specifically. The crackdowns are commonly related to China’s official zero tolerance policy to prohibit unlicensed taxi drivers from entering the traditionally heavily regulated taxi industry. Even before Uber became competitive in the Chinese market, two native car-hiring apps, Didi Dache (“滴滴打车”) (backed by Tencent) and Kuaidi Dache (“快的打车”) (backed by Alibaba), used to dominate China’s taxi app industry by a combined 95% market share. The two apps announced a merger in February 2014, one year after Uber entered China. This move was viewed by many as a strategy for native-based companies to jointly compete against Uber.
Compared to the situation in the U.S. and EU, the regulatory challenges faced by Uber and other sharing economy companies (e.g. AirBnb) in China comprise both similar and distinctive elements. On one hand, there are precedents of regulation, even in the most open and liberal economies. In Germany, a Frankfurt-based court ruled that Uber was using unlicensed cabs and involved in unfair competition with local taxis and barred it temporarily (which lasted two weeks) from operation in September 2014. The story was again written about in March 2015, when a German court imposed a ban on UberPop nationwide, unless the drivers held the required licenses for operation. Uber suffered similar backlashes in South Korea, where its CEO, Travis Kalanick, and almost thirty employees were charged on suspicion of providing “illegal taxi services” in the country. Even in its home state of California, the app is facing tightening regulations on background checks and qualification of affiliated drivers.
Traditional supporters of public interest theory view the regulations as necessary and beneficial. Graham Hodges, professor of history in Colgate University and author of Taxi! A Cultural History of the New York City Cabdriver, is suspicious of Uber and believes that the cab industry needs to be regulated for public benefits.
“Taxis are pretty much a public utility – just like subway and bus systems, taxis provide an invaluable service to cities like New York, and the government should play an important role in regulating them. They shouldn’t be fair game for a private corporation like Uber to takeover control, any more than an inner-city bus service should be privatized.”
“Taxis are pretty much a public utility – just like subway and bus systems, taxis provide an invaluable service to cities like New York, and the government should play an important role in regulating them. They shouldn’t be fair game for a private corporation like Uber to takeover control, any more than an inner-city bus service should be privatized,” said Hodges. And the competition between heavily-regulated traditional taxis and lower-cost private companies like Uber is inevitably unfair for the former.
On the other hand, there is far less evidence regarding the benefits of regulation, especially in emerging markets like China. There are four major differences in regulations in the Chinese transportation industry compared to other markets.
First, what makes Uber’s future unclear in China compared to Western countries is that taxis are far more common and relatively cheap in China. They also constitute a larger portion of local public transportation networks. The taxi industry is large and powerful, providing thousands of jobs to one municipality and paying big sums of local taxes. Therefore, the fleet operators are able to wield heavy influence in the local policy-making process, including regulatory policy.
Second, aside from their economic contribution, taxi companies are mostly co-owned by the state in China – and many share entangled interest networks with local governments. Regarding government intervention in largely unregulated e-commerce industry, a Chinese a entrepreneur once told me that,“it is difficult to run a private business though without being backed by some potential “guanxi” in the regulatory department.” The same could be said for the sharing economy industry. Compared to Didi and Kuaidi Dache, the foreign background and capital source of Uber makes it an easy target in an industry shadowed by government ownership. Perhaps it’s just more difficult to take a piece of the pie from the plate of the communists.
Yet even official Chinese media recognized the lack of competitiveness and efficiency of the taxi industry under over-protection. A China Daily article pointed out that, “the fast growth of Uber in Chinese cities indicates that China’s taxi industry cannot meet the demands of customers. The taxi business is largely a monopoly with entrenched vested interests, and operates in a manner that lacks transparency and supervision.” The author further argues that, “punishing Uber drivers without implementing the overdue reform of the taxi industry, which fattens a few and exploits hundreds of thousands of taxi drivers, is to side with taxi business owners.”
“Punishing Uber drivers without implementing the overdue reform of the taxi industry, which fattens a few and exploits hundreds of thousands of taxi drivers, is to side with taxi business owners.”
Finally, punishing Uber could be a convenient way to shift attention of angry taxi drivers from attacking the state-sanctioned companies and the government. Traditional taxi drivers making a hard-living with high fees and long working hours (often exceed 12 hours per day), have already expressed their dissatisfaction via strikes in several cities across the country. The strikes have aroused the authorities’ attention as they try to maintain stability. The entry of private car-hiring apps like Uber nevertheless intensifies competition and makes their situation worse. This provides another outlet for licensed cabbies to express their rage, given that Uber is an “outsider.” The decision to regulate Uber is one of the few policies which could both pacify the drivers and maintain the state’s interests in maintaining social stability.
Public opinion among taxi drivers is polarized regarding the Uber clampdown. Drivers in Guangzhou were reportedly happy about the raid and viewed it as, “doing justice.” On the other hand, some taxi drivers secretly joined the Uber platform for the “innovative experience.”
Meanwhile, Uber users that enjoy the convenience and low-pricing strategy of the app have become its staunch supporters. Many view the regulation with suspicion and sarcasm, regarding it as a twisted form of protectionism backed by the monopolistic vested interests. Given the prevalence of collusion and corruption, these views are not surprisingly common.
“Where the state capital could do well – do not enter. It’s not the cake for you.”
Under a discussion thread on Zhihu, a Quora-like Q&A discussion forum, over half of the answers are sympathetic about Uber. One commentator summed up this sentiment by stating, “Where the state capital could do well – do not enter. It’s not the cake for you.”
Photo from Flickr.