China MayRequire Hailing Apps to Register Business Vehicles

China is considering regulations that would force ride-booking apps such as Uber and Didi Kuaidi to use commercially registered cars and drivers, and would allow city governments to limit permits for those services, according to people familiar with the plan.

The companies would be barred from offering their services at below cost for the purpose of disrupting competitors, said the people, who asked not to be identified because the proceedings are private. The proposed rules may be released soon for public consultation, though details may still change, they said.

The transportation ministry didn’t respond to a faxed request for comment. Huang Xue, a Beijing-based spokeswoman for Uber Technologies Inc., said the company doesn’t comment on speculation. Li Min, a spokesman for Didi Kuaidi, said he’s unable to comment because the company hasn’t seen any official materials on the regulations from the ministry.

The proposed framework for governing car-hailing services, while giving them legitimacy, will also challenge their current business model of signing up owners of privately owned cars and matching them with riders. Vehicles that are registered for commercial use have to be scrapped after eight years and carry higher insurance and tax rates.

The power of local authorities to limit the number of permits for vehicles driving for car-hailing apps may also cap the growth of Uber and Didi Kuaidi, both of which have raised billions of dollars from investors by pitching rapid expansion in China. The two companies have spent heavily on subsidies for drivers and consumers in attempting to build a following.

Despite being loaded with cash and armed with plans to expand into dozens of cities, the companies continue to operate in an ill-defined area when it comes to enabling privately owned cars to provide paid transportation. That service traditionally has been confined to licensed taxis and rental companies.

The requirements for commercial registration and higher fares were earlier reported by the Economic Information Daily, a newspaper managed by the official Xinhua News Agency. The China Business Journal reported Monday that the number of on-demand vehicles will be left to local authorities to decide.

Both Uber and Didi have repeatedly pledged to operate in accordance with regulations while lobbying the government to update rules to reflect commuter habits that have changed with the sharing economy.

Didi Kuaidi President Jean Liu said this month the difficulties of commuting in Chinese cities have created a “common language” between the company and government officials, who understand that congestion reduces the efficiency and competitiveness of a city.

Uber Chief Executive Officer Travis Kalanick made clear the company wants to be good partners in China by creating jobs and cooperating with the government. He called Uber “co-architects in making cities of the future” during a speech in Beijing earlier this month.

For more, read this QuickTake: The Sharing Economy