Uber May Follow Google and Exit from China due to New Online Car Hiring Regulations

15 Jul

The Chinese government will introduce provisional regulations on online car hiring businesses as to assert tighter control over this rapidly growing industry. Besides strengthening the regulations on online car hiring businesses, the latest measures will also cover privately owned cars that have signed up to these service platforms and police them as part of the car rental/hiring industry for the first time. The Chinese government has yet to announce the specifics of the new law, such as registration requirements for drivers and vehicles. However, there is an alleged clause that requires the service platforms to be based inside the country. This rumor is bad news for Uber as its business in China is currently owned and controlled by a single shareholder, the Uber headquarter in the U.S. The company will have difficulty operating in China unless it changes it ownership structure.

As huge amounts of capital continue to enter China’s fiercely contested online car hiring market, the government has responded with additional regulations. Though the details on how this market will be supervised have yet to be revealed, media reporting has revealed privately owned cars that have signed up with an online car hiring platform will be designated as rental/taxi vehicles. Thus, drivers and vehicles working under these businesses will now be required to meet certain industry standards. Additionally, these kind of platforms must be set up and registered in China.

Yang Chuangtang, head of China’s Ministry of Transport, had stated earlier in June that new regulations on online car hiring platforms will encompass the ownership structure of such businesses and the location of data servers.

The two major regulatory demands from the Chinese government – incorporate business in the country and operate under the local business license – will have major impacts on the U.S.-based Uber. While Uber has received investments from the Chinese internet giant Baidu, Uber’s U.S. headquarter remains the controlling stakeholder of its operation in China. Whether the Chinese government will grant Uber an online business license is uncertain because Uber’s Chinese subsidiary has to be controlled by domestic investor groups before it could apply for such license.

At the same time, international companies that operate online services in China have to set up their data servers inside the country. Company employees outside China are not permitted to access the local Internet traffic data, nor are they allowed to send traffic data into the country. This means that the Uber headquarter cannot manage the company’s Chinese operation.

Once the new regulations are implemented, Uber will therefore have to set up a joint venture company with local investors in order to continue operating in China. Then, it has to apply for related business licenses, and this process would take at least six months to a year. Uber may exit from the extremely competitive Chinese car hiring market before it manages to accomplish these tasks since the company is already falling behind its competitors in terms of market share.

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