WARS

BY DAVID DAWSON

WARS

BY DAVID DAWSON

China’s taxi apps drive conflict in the world of public transport

打车软件来了，出租车行业翻天覆地。对乘客、司机和私车主来说这意味着什么呢？

It’s another busy Saturday night outside the Worker’s Stadium in Sanlitun, Beijing’s central nightclub district. Far from being an egalitarian hub for the sporting proletariat as the name would suggest, the area buzzes with young Chinese eager to show off their bling. Lamborghinis and Maseratis regularly pass through the gates, but in the past they were outnumbered by the less spectacularheiche, or black taxis, which gathered outside.

These days, the numbers of theseheichehave dramatically fallen to be replaced by a new kind of plugged-in driver.

The age of the driver-app has begun, and it is not hyperbole to say that it is revolutionizing the transport industry. And while overseas transport app Uber is largely the only game in town—growing so powerful as to warrant aNew York Timespiece on how it is upending the labor market and inserting itself into the race for the White House—in China, Uber, backed by search engine Baidu, is challenging a mighty corporate empire with tentacles in every aspect of online life, from shopping to instant messaging.

“It’s nice; you can have a smoke, eat, have a beer with friends, and drive when you want,” says Han, a driver in his 30s clad in a white T-shirt and jeans, when asked about working for Didi Dache (which translates loosely as “beep beep hail car”).

Just around the corner from the stadium, he is smoking and leaning against his car, a grey, older-model sedan manufactured by Anhui manufacturer Jianghuai Auto. Waiting for passengers like this is generally the exception rather than the norm; prospective passengers log in to Didi using their smartphones and summon the nearest driver to their location while the car is on the move.

Once driving, he turns on the GPS, which provides dubiousdirections at best. At one point, on its command, he attempts to turn down Nanluoguxiang, one of the most crowded tourist shopping streets in the entire city, before the passengers stop him. While technically the street is open to cars, at approximately five meters wide and jam packed with tourists out on a Saturday night, he would have been trapped for hours.

“The map says it’s okay,” he grumbles as he slowly backs out of one end of the street and chooses a different route.

It was an elementary mistake that anyone with more than passing knowledge of the city would know to avoid, but in many cases the drivers simply don’t have that—a stark contrast to most taxi drivers, who have built their careers on navigating the grid-like narrow alleyways of the city, with the occasional out-of-town driver filling in for a relative, famous for their spectacularly poor navigation skills.

His smartphone does at least grant him knowledge crowd sourced by other drivers relating to how bad the traffic is on certain roads. Streets are shaded with different colors depending on congestion levels. Evidently, no other drivers had been foolish enough to try their luck on Nanluoguxiang, seemingly rendering it congestion-free on the app.

Arriving at his destination in the city’s old hutong district, he gets paid through the app, which is linked with the passenger’s online bankcard.

The final fee paid by the passenger, after factoring in company subsidies to drivers and 10-RMB discount voucher? Seven RMB. That same trip in a taxi would be around 20 to 35 RMB, depending on traffic.

It’s no wonder taxis are finding it hard to compete. But they do have one very big advantage: unlike these corporate giants, they are legal. Technically, as far as the authorities are concerned, the millions of drivers like Han are working for rogue companies that are operating entirely illegally and are partly responsible for widespread protests and strikes by cab drivers around the country.

Didi Dache,popular with young people, being used to hail a cab in Shenyang, Liaoning Province

ROAD RAGE

Initially Didi Dache and (former) rival Kuaidi Dache functioned as apps that allowed people to find and hail the nearest cab online. But with explosive growth came conflict.

By December 2014, Didi Dache reportedly had over 100 million users and operated in over 300 cities with over a million drivers. Although the app companies say they are not so different from taxi services, in reality the massive boom in demand has meant that drivers are often just citizens with a car and a driver’s license, and maybe a modicum of training.

Government regulations were in no way ready for this, and the authorities have repeatedly declared these services illegal. They insist thatthe companies must have accident liability insurance, pay income tax, train their drivers, and have reporting mechanisms to handle passenger complaints.

Transgressions of these requirements tend to result in penalties for the drivers, with threats of 10,000 RMB fines and cars being impounded, but higher figures in the companies also have reasons to be jumpy.

In June of 2015, Beijing authorities said they had found 207 cases of Didi Dache’s drivers operating illegally. This came after a raid in April on Uber’s offices in Guangzhou and another visit by law enforcement to the Uber office in Chengdu in May. Guangzhou authorities accused the company of running an illegal car service, and three local departments joined together to search the offices and pack up documents. In December of 2014, an Uber training session in Chongqing was similarly disrupted by a visit from the authorities.

The app services were accused by the Beijing government of causing congestion in July of 2015, and senior figures from Uber and Didi Dache were accused of tax violations, unlicensed operations, and sending unsolicited text messages.

Thus far, the car app services have been negotiating with local governments across the country in an effort to be seen as legitimate.

But, despite their size and economic heft, it has proven difficult, as indeed has been the case with Uber overseas, where it has not waited for laws to catch up with the new technology. In France, protests by taxi drivers that were reminiscent of the protests in China resulted in the authorities arresting two executives, and the popular low-cost peer-to-peer UberPOP service being shut down. The key difference between UberPOP and Uber’s other services was the fact that UberPOP corralled drivers that had not gone through the kinds of licensing checks required by its other services. They were regular Joes rather than professional drivers. This cuts to the heart of the issue in China. Are the drivers working for these apps more like cab drivers, or just regular citizens with a driver’s license? If governments decide the latter, then the app companies are likely to be driving toward a grim path.

This is why the app companies are cagey when pressed about the subject. When a staff member fromTWOCapplied to be a driver, an employee at Didi Zhuanche (Didi Dache’s upmarket offshoot, meaning “special car”) said that training was handled by car rental companies and varied from city to city.

However, one Didi driver revealed that Zhuanche usually chooses its drivers from the pool of standard Didi Dache drivers with good cars and high ratings from the app itself. As for training, the driver said the company hadn’t given him any at all.

The incentives for drivers, particularly in the upmarket offshoots, are attractive. One Didi Zhuanche driver in the capital said that if he manages to snag bonuses for hitting

Shenyang cabbie Mr. Dong, 59, can't use cab apps due to his poor eyesight, and he's having trouble finding farestrip quotas, he can reasonably make 10,000 RMB per month, a very respectable salary.

To be a driver, their car has to be worth at least 70,000 RMB, preferably black, with no damage or logos painted on the sides. There is also a training video for drivers.

They must have three years of driving experience with no accidents, no obvious tattoos or scars, have good knowledge of routes (though it doesn’t specify how this is tested), be in good health, and aged between 22 and 55 for a male or 22 and 50 for a female. They must have a C1 driver’s license (for cars with less than nine seats) or better and no criminal record or psychiatric disorders.

These requirements are fairly uniform across the car apps, but rules mean nothing if they are not enforced. In June of 2015, a driver from a car-hailing app took an intoxicated female passenger to a hotel in Guangzhou and allegedly raped her while she was unconscious. He had reportedly been released from prison after serving time for theft. The woman remembered using a car app but could not confirm which one she had used.

Unfortunately, the sheer number of drivers these apps have makes any attempt to regulate them incredibly difficult. There are also plenty of reasons to suggest that what occurs on the surface isn’t indicative of what drivers are really doing. A number of media reports have highlighted the ways in which drivers can game the system. Uber’s Chinese peer-topeer service (similar to UberPOP which was shut down in France), for example, offers cash rewards to drivers based on the number of trips they make. But these can be abused by making arrangements for nearby“passengers” to book a trip without actually doing it, thus reaching the quota. Cash incentives offered to new drivers can also be gamed with fake credentials or driver access bought for a pittance online, and given the rape case in Guangzhou, the ease at which fake drivers can get involved is cause for added concern.

Cab drivers in Dongguan, Guangdong Province, protest in May of 2014 to demand "tea fees" (usually 40,000 to 130,000 RMB paid to secure a cab license) be returned by their company

TAXI TURMOIL

Taxi drivers are understandably miffed about the competition, which further complicates disputes between taxi drivers and the taxi companies they work for, which demand high fees from drivers even as the authorities keep cab prices artificially low.

A cozy relationship between the authorities and cab companies has meant that in places like the capital, new licenses for cab companies have rarely been issued since 1994 despite massive population increases. As a result, almost all of the capital’s 66,000-or-so cabs are run by taxi companies rather than individual drivers, and that number has scarcely changed in two decades. There are now around 200 operational cab companies in the city, but the top 10 occupy around 70 percent of the market.

The nation’s approximately 2.3 million cab drivers are often pleased to recount their woes to passengers. One recently said that he was regularly charged upwards of 3,000 RMB per month to drive his small, ramshackle older-model car, but that other drivers with nicer cars were charged much, much higher amounts. One driver told Xinhua News Agency that he pays 7,000 RMB per month to the Beijing Shengdali Taxi Company. Media reports have put them at 9,000 RMB in Nanjing. Amounts above10,000 RMB are not unheard of. The vast discrepancies in prices—and the fact they take the lion’s share of profits— demonstrate the power of these taxi companies.

But in the face of this power, for drivers, long shifts have become necessary to make ends meet.

Given the dire state of the industry, Beijing authorities in 2013 mandated a 30 percent increase in the minimum fare, the first such increase since 2006, taking it up to 13 yuan for the first three kilometers, with each additional kilometer providing 2.3 RMB instead of 2 RMB. Although this was certainly welcomed by the drivers of the 66,000-or-so cabs in the city at the time, it has failed to improve the infamously irascible moods of the capital’s cabbies. Their moods are also affected by the constant congestion, which can swallow up profit margins given the fact distanceto-time ratio is a key determiner of the fare.

With such widespread dissatisfaction, strikes by cab drivers have been common. The start of 2015 was marked by strikes across half a dozen cities, and they have sporadically continued ever since. Many complain that taxi companies ignore their plight, even as the new apps move in on their territory.

Cabbies in the city of Guangzhou in South China’s Guangdong Province, enraged by the threat posed by Uber, in June took matters into their own hands.

They reportedly booked the Uber driver through the app then handed him over to the authorities when he appeared. The situation escalated when fellow private car drivers showed up in solidarity to prevent the authorities from taking him away. Riot police were eventually called in to aid traffic police as crowds swelled.

BIG BUSINESS

Kuaidi Dache and Didi Dache started out as competing tech startups in 2012. They quickly gained popularity and the attention of China’s internet giants, Tencent Holdings, which owns the ubiquitous social media app WeChat and Alibaba, known for its online shopping and payment systems

Each snapped up one of the companies: Tencent bought Didi (and its more upmarket offshoot Zhuanche), while Alibaba bought Kuaidi. These rivals engaged in a savage spending war in an attempt to dominate the market, offering extensive vouchers and subsidies to both drivers and passengers.

However, likely sensing the heavy financial cost of a protracted and unwinnable war, the two companies agreed to a six billion USD merger of their car apps on the auspicious date of February 14, 2015: Valentine’s Day. It would seem that in a country grappling with difficulties due to state-owned monopolies, yet another monopoly had been born—technically not a state-backed monopoly this time, though both Tencent and Alibaba remain heavily enmeshed with internet management authorities.

This, perhaps, gives Didi Kuaidi (as some reports have begun referring to the merged entity) a little more protection than Uber, which, as a foreign company with a long record of exploiting legal gray areas and challenging the authorities, is likely to be met with a certain amount of resistance. But it is not without its own powerful Chinese supporters; search giant Baidu is backing Uber in an effort to compete with the other tech giants with their toes in the car-app water. In December of 2014, Baidu provided an undisclosed amount of investment to get a piece of Uber, and with Baidu’s map app being a vital part of navigation for a huge section of the Chinese market, it’s not hard to see where the companies can work together.

Even as the authorities increase pressure on the car-service app companies, it would seem that even the sky isn’t the limit for them. In July 2015 Didi Dache announced a helicopter service in Xi’an, Shaanxi Province, offering three pre-set routes and prices between 998 and 1,498 RMB.

National borders aren’t posing any limits either. Kuaidi’s luxury service Kuaidi One—which basically uses drivers from limo or high-end rental services—announced prior to the merger with Didi that it had plans to take the business model overseas. Given that Kuaidi One isn’t one of the peer-to-peer driver services, it is unlikely to ruffle the feathers of authorities in China or elsewhere, perhaps quite the opposite if it provides competition for Uber in other markets.

But in the meantime in China, only time—and, perhaps, the authorities—will tell if these apps have a future.