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First-tier cities propose hukou requirement for car-hailing services

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As reported by China’s official People’s Daily news agency, three of China’s four first-tier cities have published draft rules that would limit the pool of eligible drivers for online car-hailing / ride-sharing services by adding local hukou requirements. The move, if implemented, would severely affect leading ride-sharing service Didi Chuxing, which agreed to acquire the Chinese business of Uber earlier this year.

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Hukou system

Draft rules recently published by local authorities in Beijing, Shanghai and Shenzhen specify that only holders of local residency permits called hukou (户口) would be eligible to apply for permits to be drivers for private car-hailing services.

China’s hukou system is a household registration system that historically divided urban and rural populations by dictating, to a certain extent, where people were allowed to live and work. In modern China most citizens are not per se excluded from working in a city different than that specified on their hukous, however most migrant workers are not allowed equal access to healthcare or even education for their children in the cities where they live and work. Moreover, it’s incredibly difficult for these migrant workers to officially change their place of residence specified on their hukou.

According to a Didi representative, less than 3 percent of the 410,000 drivers currently on Didi’s platform in Shanghai have a local hukou.

Vehicle standards

Draft plans to implement tighter vehicle standards (e.g., minimum wheelbase width) could likewise have a massive impact on Didi. According to a Didi representative, more than 80 percent of the service’s current vehicle fleet in Shanghai does not comply with the proposed specifications.

“These proposals would likely mean a sharp drop in market supply of ride-sharing vehicles, a significant decrease in the number of drivers and a steep rise in costs,” Didi said in a statement. “We call for local authorities to create a more enabling and friendly environment for new technology developments in the sharing economy.” Beijing, Shanghai and Shenzhen have requested feedback on the planned rules in coming weeks.

This summer the Chinese central government gave a legal green light for online car-hailing services, coinciding conveniently with Didi’s agreement to acquire Uber’s China business to form the largest platform in the country.

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