Didi Chuxing has about 90 percent of China’s e-hailing trips in 2017. Most of its drivers are part-time. Half of its drivers worked less than two hours a day according to a report by Bain and Company.
The sharing economy
The ride-sharing drivers are part of what is called the “sharing economy” that the Chinese government has been keen to promote.
The phrase “sharing economy” is used vaguely to cover many different things. Wikipedia says: ” Sharing economy is an umbrella term with a range of meanings, often used to describe economic activity involving online transactions. Originally growing out of the open-source community to refer to peer-to-peer based sharing of access to goods and services, the term is now sometimes used in a broader sense to describe any sales transactions that are done via online market places, even ones that are business to business (B2B), rather than peer-to-peer. For this reason, the term sharing economy has been criticized as misleading, as some argue that even services that enable peer-to-peer exchange can be primarily profit-driven. However, many commentators assert that the term is still valid as a means of describing a generally more democratized marketplace, even when it’s applied to a broader spectrum of services. Alternatively, collaborative consumption or the sharing economy refers rather to resource circulation systems which allow a consumer two-sided role, in which consumers may act as both providers of resources or obtainers of resources. The exchange may be performed directly on a peer-to-peer basis, or indirectly through a mediator (ex. store, website, app); online or offline; for free or for other compensation (ex. money, points, services, etc.).”
China includes shared platforms, from mobility to elderly care services under the sharing economy. The sector is expected to show a 30 percent annual growth over the next five years in many different fields such as agriculture, education, medical treatment, and care of the elderly. A recent Chinese newspaper article notes: “The market turnover of China’s sharing economy reached 4.9 trillion yuan ($763.5 billion) last year, a 47.2 percent increase from the previous year, according to a report released by the Sharing Economy Research Center of the State Information Center.”
New regulations will make part-time driving expensive
New regulations that came into effect January 1st 2019 bans drivers who do not have the required double licenses. One of these licenses is for drivers and the other one for the cars they use. The licenses are intended to vet drivers more adequately than in the past.
In certain cities the ride-hailing permit requires drivers to have a local residency permit allowing them to legally work in the area. Many drivers did not have these local permits but are migrant workers from rural areas. These drivers will become ineligible to drive using the ride-hailing apps
Drivers will still be able to work as independent contractors. A Didi driver from Shenzen told TechCrunch: “No part-time drivers want to register their private car as a commercial one because of the high costs that come with it. Being part-time doesn’t pay the bills anymore.”
Ride-hailing took off quickly as there was relatively lax regulation of the industry at first. Even companies such as Uber jumped into the rising business although it was later bought out by Didi. However, regulations have gradually increased. The latest tightening of regulations was no doubt partly caused by a reaction to the deaths of two Didi passengers in 2017.
The tighter regulations are causing a steep decline in driver and car numbers. In Nanjing alone, Didi claims the regulations have weeded out more than 160,000 illegal vehicles according to local media. Didi has to consider way to maintain a constant supply of drivers as the decline of cars and drivers leads to longer wait times for customers as well as dissatisfaction with the service.
Didi is burning through cash
Originally there were generous subsidies for users and drivers to help the industry grow, But now Didi lost $585 million in just the first half of 2018. Didi cannot afford to offer cash heavy incentives in the near term. Didi is offering test preparation for drivers to ensure a supply. It is also letting drivers rent licensed cars it gets from car rental and auto maker partners.
Didi is also facing new competition from companies such as BMW, and Volkswagen with its Chinese partner.
Dong Feng, the founder of a Chinese car rental company said: “Didi has educated China about what is ride-hailing. If it doesn’t react swiftly to changing dynamics, the billions of yuan it’s burned through will suffer from low returns.”