China Finally Legalizes Uber and Didi

July 28, 2016, 12:30 PM UTC
Baidu Launches "AI-powered Digital Assistant" Duer In Beijing
BEIJING, CHINA - SEPTEMBER 08: (CHINA OUT) Travis Kalanick, CEO of Uber Technologies, attends the launching conference of Baidu's AI-powered digital assistant "Duer" during the 2015 Baidu Technology Innovation Conference on September 8, 2015 in Beijing, China. Li said: "the new digital assistant "Duer" that will be integrated into its latest mobile search app and use artificial intelligence to tailor suggestions to a user's tastes" and it also already handle requests for restaurant bookings and food delivery, pet grooming services and film ticket sales. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)
Photograph by ChinaFotoPress via Getty Images

Uber operates in plenty of places where its service is neither legal nor outlawed—a limbo of an existence. China is no longer one of those places.

Seven central government ministries today legalized ridesharing services in the country, releasing a long-awaited set of rules for Uber, bigger local rival Didi Chuxing, and others.

The companies’ press releases about the news this afternoon read like thank-you notes.

“[T]his is a welcome step in a country that has consistently shown itself to be forward-thinking when it comes to innovation,” Uber said.

“We believe the Rules reflect the government’s open-minded regulatory approach to the mobile car-hailing industry in the broader context of the sharing economy,” Didi said.

You don’t hear companies encouraging regulation every day. But Didi and Uber were in a tough spot in China: the gray legal zone in which they operate left them vulnerable to the whims of bureaucrats. And though they still are in ways —local governments must adopt and execute the preliminary Chinese rules—a huge uncertainty is gone in the biggest potential market for ridesharing in the world.

The rules don’t appear onerous, either. The main takeaways: Drivers must have three years experience, drive a vehicle with less than 370,000 miles (a point Didi celebrated because the alternative was an 8-year age limit), and companies must charge prices that do “not disturb the normal market order by operating at the prices below the cost of operations”—basically avoid the type of deep discounting that is already a thing of the past for Uber and Didi, according to the companies and reports.

The State Council also indicated taxi franchise fees would be gradually phased out in favor of moving their services online. In that way, China is supporting ridesharing companies to a greater degree than many Western countries.

The regulations come just as the outlook is improving for Didi and Uber. Both are saying they are closer to profitability, thanks to a slowdown in the subsidy war the two waged in the country for more than a year. Now their legal limbo is no longer clouding that outlook.