How to tackle the apps test to cabbies

Thousands of taxi drivers in Shenyang, Liaoning province, reportedly blocked streets with their vehicles on Sunday in protest against unlicensed vehicles using taxi-hiring apps and apps-based car rental companies providing passenger services, including high-end cars.

Thousands of taxi drivers in Shenyang, Liaoning province, reportedly blocked streets with their vehicles on Sunday in protest against unlicensed vehicles using taxi-hiring apps and apps-based car rental companies providing passenger services, including high-end cars. Although the cabbies also complained about the withdrawal of the fuel subsidy by the government, their main grievance was the loss of business because of the rising number of Internet-based car services companies.

On Wednesday, news reports came that Beijing transport authorities will take measures to curb the illegal “taxi business” of private cars through the newly rising Internet apps, following the footsteps of Shenyang and Nanjing.

It is not yet clear how the Shenyang city government will handle the issue and whether it will declare the services offered by market leaders such as Didi Dache, a taxi-hailing app provider backed by Tencent Holdings, and Kuaidi Dache illegal. But Shanghai transport regulators have set a precedent, by proscribing Didi Zhuanche, or car services offered by Didi Dache in December.

Such regulations will cause a setback to the car-hiring companies and investors that are waiting to cash in on the potentially booming business. Just last month, Didi Dache secured $700 million in funding from global investors, including Singapore state investment company Temasek Holdings, Russian investment company DST Global and Tencent. Besides, the market is agog with rumors that Kuaidi Dache is about to finalize its latest round of funding after securing $800 million from global investors.

Regulatory uncertainties, however, could cast a shadow on the prospects of the Internet-based car-hiring services, which have become popular in most of China’s big cities. To be fair, these companies’ business model is anything but dubious. For example, Didi Zhuanche works in tandem with established car rental companies to provide high-end car service mainly for businesspeople through the Internet and mobile phone apps.

Every link in this business model chain has legal companies and services. Hence, it is hard to define it as illegal and ban it.