China Ride-Hailing Rules Threaten Didi’s Migrant Drivers

ENLARGE

A Didi Chuxing driver in Beijing. Many drivers aren’t officially registered in the cities in which they work. Photo: Reuters

BEIJING—New Chinese rules on ride-hailing apps are expected to force many of Didi Chuxing Technology Co.’s Beijing and Shanghai drivers off the road by declaring that they must be local residents.

The development in the global battle between transport regulators and ride-hailing apps is distinctly Chinese, centering on a household registration document, or hukou, that stipulates where all Chinese are allowed to live and work. Many drivers aren’t officially registered in the cities in which they work; and in October, Didi said that less than 2.4% of its drivers in Shanghai were locals.

The rules are expected to dampen growth prospects for a sector dominated by Beijing-based Didi, which struck a deal in August to acquire Uber Technologies Inc.’s China unit.

The ride-hailing hukou rule is typical of the blunt instruments China often resorts to for regulating urban life. Beijing traffic authorities told China’s official Xinhua News Agency on Wednesday that keeping migrant workers out of the ride-hailing driver pool was necessary to limit traffic, environmental problems and other “urban diseases.”

The release of the rules, which have been in development for months, came in a week in which China’s northwest was blanketed in red-alert smog, prompting emergency measures that halted factory production and cleared cars off roads.

In a post about the rules on Thursday morning, Shanghai’s internet regulator invoked “PM 2.5,” the term familiar to residents of smog-choked Chinese cities for the fine particulate air-pollution matter that is damaging to lungs.

“In an age when the PM 2.5 problem is more and more severe, public transportation is clearly more efficient in energy usage,” the Shanghai regulator said.

In many Western countries, a ban against migrant drivers would be seen as discriminatory. But the residency rule for ride-hailing drivers in Beijing and Shanghai is in line with other Chinese regulations: Only residents with local hukou can drive traditional taxis in those cities. As China’s political and financial capitals, influxes of migrant workers have been more tightly controlled there than others in the country.

Guangzhou issued looser ride-hailing rules on Thursday that allow some migrant workers with special residence permits to work as drivers, along with residents with local hukou.

As in the U.S., China’s ride-hailing sector is controversial among regulators, but popular with investors. Didi’s investor list includes Apple Inc. and China’s three internet giants, Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. More than 6 million passengers use Didi and Uber in China each day.

Didi, which had sharply criticized a draft of the rules in October, saying that it would kill millions of jobs for drivers, on Wednesday issued a more conciliatory statement, praising the government for taking some of its suggestions in discussions before the rules were finalized.

Beijing added a five-month grace period for existing drivers to comply and Shanghai allowed some smaller cars to operate that it previously planned to exclude.

“We are encouraged by improvements in new local rideshare rules published in Beijing and Shanghai,” Didi said on Wednesday. “Compared to the first proposed drafts, these rules are a significant step toward a more sensible and liberal framework.”

Shanghai’s internet regulator, meanwhile, remained in combative mode. In a scathing attack through its WeChat social media account on Thursday morning, it alluded to Didi’s October complaint without naming the company, essentially saying it was running an illegal taxi business.

“In their lofty boasting, they say it’s a ‘sharing economy’ of unused cars and part-time drivers,” the post from the Shanghai branch of the Cyberspace Administration of China said. “But as soon as there is regulation, it’s exposed that it is ‘taxi-like’ in reality. If they’re really part-time drivers, where does this talk of job losses come from?!”

A Didi spokeswoman said in response that the company’s statements about job creation encompassed both part-time and full-time drivers. She said that China’s national leaders support the “sharing economy.”

Industry analysts said the rules will likely shrink the driver pool in Beijing and Shanghai, forcing the companies to raise prices.

Some Didi drivers expressed dismay at the new rules. Others took the news in stride. “I won’t be able to drive for Didi anymore, so I’ll have to find another job,” said Song Kuihu, a 42-year-old driver from Henan province who works in Beijing. Before Didi’s arrival, Mr. Song said he had ferried passengers in an unlicensed taxi in the capital for a decade.

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