China’s largest ride-hailing firm Didi Chuxing was summoned by the Road Transport Management Bureau of Zhejiang Province and 11 city level transportation bureaus for operating without licenses in some cities, and was warned of unfair competition, according to a notice on China’s Ministry of Transport’s website.
Didi hasn’t obtained ride-hailing licenses in five cities in the province, including Huzhou, Jiazhou, Quzhou, Lishui and Taishui, despite all 11 cities in Zhejiang having introduced relevant rules last year. Didi also use unqualified cars and hired unqualified drivers in the five cities, according to the notice.
The Zhejiang Road Transport Management Bureau has ordered Didi to obtain the licenses in the above cities, clean up unqualified vehicles and personnel, submit an overhaul plan to the local administration, and has warned of unfair competition by lowering prices below costs.
Didi said it will cooperate with transportation administrations to regulate itself and improve its service.
Didi’s rapid and at times problematic expansion is being forced by the increased competition brought by increased competition from new-comers in its market, including Alibaba’s mapping unit, AutoNavi Holdings Ltd. and online travel service provider Ctrip.com International, Ltd. (NASDAQ: CTRP), and group-buying and location-based services firm Meituan-Dianping. The giant is also busy expanding overseas to rival Uber, as it just announced to launch its operation in Mexico yesterday.
Like bike sharing market, new comers in ride-hailing sector usually picks up market share by providing lower price services and more generous subsidies to drivers. But the Ministry of Transport has published two articles on its website to criticize price war and unfair competition.
"Recently some ride-hailing companies have started the war of burning cashes again," it said in one article, "Some firms use investors’ money to provide massive subsidies regardless of the qualifications of vehicles and drivers, to provide low-price services. User experiences have worsened and traffic congestion has increased in the short period of time."
"Providing subsidy by burning cashes can gain short-term market share, but it also destroy market fairness and bottom line in the long term," it said in another article, "burning cashes is an act that ignore regulations and market order. "
The ministry said massive subsidies could lead to multiple issues, such as drivers faking orders, canceling orders, and operating with disqualified vehicles, and ultimately will lead to unsafe and low-qualify services.