• NDRC yet to review MOT’s draft rule
  • Uber may be unable to operate in China if rule implemented
  • MOT’s draft rule may not be published given heated debates

The Chinese Ministry of Transport’s (MOT) recent draft regulation about online ride-hailing services has drawn public outcry over its tough line against private cars’ participation. One element causing controversy amongst Chinese legal scholars is a requirement that companies offering this service “shall not hold a dominant market position.”

“If ride-hailing is heavily regulated for market entry, then it’s not a competitive market,” a Shanghai-based law professor told PaRR. “Under this circumstance, requiring companies not to hold a dominant market position is kind of weird.”

Gu Dasong, a law professor at Southeast University, also said such a clause in a government regulation may be inappropriate, especially givenrumours that some local Chinese governments are planning their own online ride-hailing platforms.

“We first need to understand the nature of this regulation,” Gu said. “This will likely be just a departmental rule. Do government agencies have the power to make such a requirement?”

A senior researcher at a think tank affiliated with the National Development and Reform Commission (NDRC) suggested that the MOT’s draft rule has little enforceability and legal basis, pointing out that authorities have no right to look at private individuals’ personal mobile phones to check if they use ride-hailing apps.

The NDRC’s Price Supervision and Anti-monopoly Bureau has not reviewed or commented on the MOT’s draft regulation, it is understood.

Since the MOT posted the twin policy documents of taxi reform and online ride-hailing services on its website on 10 October, there has been an explosion of public opinion in reaction. Many say the MOT’s planned taxi reform follows the old methodology of heavy government involvement and license control. 

And for China’s first ever national-level draft regulation on online ride-hailing services, opinions from consumers and scholars – judging from comments on the Internet and news media – have been overwhelmingly critical of the restrictions over private cars.

Among key points of the draft Tentative Measures on Online Taxi Booking:

  • China would prioritize the development of public transport, followed by taxi cabs and online ride-hailing services, in that order.
  • Ride-hailing services are categorized as online reservation cars for hire. The platform operators can apply for business licenses if they set up local offices, have servers placed in mainland China, and have databases connected to local a transport authority’s regulatory platform.
  • Foreign ride-hailing service providers need to pass China’s national security review.
  • Platform operators cannot hold dominant market positions in the locality or otherwise hinder fair competition in the market.
  • Cars and drivers for the platforms need to obtain government issued operating licenses and transportation licenses and meet other safety requirements.

 If these rules are finalized and come into force, it would effectively mean Uber, which relies solely on private cars’ participation, would no longer be able to operate in China, scholars and industry sources said. 

That is because owners of private cars will first need to change their status by obtaining licenses to operate commercially. It is unclear with what ease or difficulty those licenses will be obtained, but many expect private drivers may not bother with them to drive for ride-hailing apps.

The strong public response has put the MOT on the defensive, with officials lauding the draft rule as a landmark step for China’s willingness to legalize services by popular apps like Didi Kuaidi and Uber, both of which have been operating in China for more than a year in a legal gray zone.

But there has been so much debate about the draft rules that legal scholars said it is possible they may be revised or even shelved altogether. The MOT is seeking public comment on the issue until 9 November.

Gu said the MOT may choose instead to issue a ministry-level guidance, which has less binding effect than a regulation. The ministry should instead leave rule-making to local governments which may adjust them according to the traffic and transportation needs of each city, he said.

The Shanghai scholar echoed this view.

“The reason why the MOT chose to publicize this document as an opinion-seeking draft, I think, may be a way to feel out public responses, to understand what kind of responses this regulatory regime would generate, and to consolidate those opinions,” he said.

So far, the Shanghai municipal government has published its own set of rules about online ride-hailing. And in a departure from the MOT’s draft rule, Shanghai does not forbid private cars from providing ride-hailing services. Rather the government regulates platform operators, setting various requirements. Didi Kuaidi has obtained the first such a license in China, as previously reported

But the Shanghai scholar said a lot of studies are yet to be done to properly understand how to regulate the sector, for example, whether price surges during demand peaks would be reasonable. “Should it be completely left for the market to self-adjust?” he asked, adding: “I think that still requires further study. Many countries still set certain restrictions for the sharing economy. I think that was a reason.”