Chinese ride-hailing giant Didi Chuxing (which also includes Uber China’s operations) should be readying itself to face a driver pool crunch due to new cab aggregation regulations adopted by authorities in Beijing and Shanghai. These regulations have a clause which will force lots of drivers off the road as it requires them to be a local resident to operate in any of the two aforementioned cities.

According to the new regulations, which is based on the concept of ‘hukou’ or a household registration document that validates people living in either of these major cities have been registered for the same. This document grants people the right to reside as well as work without any restrictions but the cities have progressed due to the intense inflow of migrants — living without the correct paperwork. This move from the regulatory authorities cannot be seen as discriminatory as they’ve always focused on such laws to maintain a tighter control on the inflow of migrants into the cities.

But this will prove to have an adverse effect on cab hailing services like Didi or Uber as a majority of their drivers are migrants and they are not registered to work within either city. WSJ reports that only a mere 2.4 percent (which is just 10,000 out of 410,000) of drivers operating through Didi’s ride-hailing service in Shangai are locals and have permanent residency documents. The government resorts to practices like these to regulate the urban life and reduce citizen number in these heavily populated cities.

This is definitely a cause of worry for Didi, who is now also operating Uber’s China operations, as these regulations would act as a hindrance in the company’s growth and expansion plans. They’ll now have to onboard more local drivers and again provide them with more incentives to keep them as well as customers hooked to the service. But the cab aggregator is willing to keep its troubles aside in favor of a more clear and liberal framework for their operation in Chinese cities.

Talking about the same point, a Didi spokesperson says,

These rules are a significant improvement towards a more sensible and liberal framework. For instance, Beijing will introduce a five-month-long transition period. Shanghai lowers the wheelbase requirement from 270 CM to 260 CM, while scrapping the initial proposal for emission floors. There will be adequate time for adaptation, and more economy and environmental-friendly vehicles enter the service.

Though the new regulations have been announced by the authorities, they wouldn’t come into effect immediately. The ride-hailing startups and other aggregation services are being provided a cushion to resort to alternatives that might help keep their business afloat. This might be seen to have a negative impact on the company but the aggregation framework will only strengthen their operations in the long run.

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