Taxi drivers in ten Chinese cities have gone on strike to protest the arrival of ridesharing services such as Uber, the San Francisco based company valued at $40 billion, in the country. Traditional drivers claim the high franchise fees imposed by the state-run taxi industry inhibit their ability to compete with the cab-hailing services that have sprouted up in cities like Beijing and Shanghai.
The taxi industry in China is heavily regulated by state and local governments. Taxi licenses in urban China are controlled by state-run companies and require significant investment to be obtained. The number of licenses available in the country has remained relatively stagnant over the past two decades, driving the price as high as 1.4 million yuan ($225,861) per license in some areas. Private car operators that drive for Uber and similar services do not face this barrier to market entry and instead are only required to pay 20 percent of their earnings back their employer. The ability of this business model to undermine the structure of the traditional industry has incited protests from taxi drivers and has prompted legal action in the city of Beijing.
The Beijing Transport Committee deemed Uber and other private car-hailing services illegal in a statement made on January 28, 2015. Drivers working for “black cab” companies like Uber are subject to a 20,000-yuan ($3,200) fine if caught. For perspective, the average monthly income of taxi drivers in the city of Shengyan is roughly 5,000 yuan ($806).
Uber continues to operate in Beijing despite the legal sanctions, and the company’s future in China remains unclear.
Sources:
http://qz.com/327117/taxi-hailing-apps-like-uber-are-sparking-cab-driver-strikes-across-china/
http://qz.com/334879/beijing-says-uber-is-illegal-but-isnt-shutting-it-down-anytime-soon/
http://qz.com/323019/beijing-cracks-down-on-uber-and-its-rival-taxi-hailing-apps/
I chatted in NYC with taxi drivers about Uber. Of course they see some competition, but claimed that many of their fares claimed they tried Uber once, but vowed never to return. In any case, China’s taxi industry doesn’t sound all that different from what is found in the US and to some extent Japan (I know little of Europe). In NYC a “medallion” used to cost $1 million. That meant that virtually all drivers “lease” their cars ($1,000 per driver per week at one point), or for those who own their car, they lease their medallion. But one of my drivers was considering purchasing a medallion, figuring that between he and his partner it would be a sensible investment. (Two partnership patterns: 24 hours on, 24 hours off is one, night versus day is another — no one wants a car parked for 12 hours much less a whole day!)
The question though comes down to who rides cabs in China, and whether Uber might for example be able to tap a higher income clientelle. On general grounds I’m skeptical that Uber is worth $40 billion….my quick guess is that the market capitalization of “medallions” in a market ought to be an indication of a ceiling for any possible valuation, and that’s not anywhere near $40 billion. Furthermore, if they succeed in breaking down barriers to entry, others can do the same. So whether they can gain traction in China is important: if they can’t do so quickly, or they find others in “their” strategic space, then their value proposition becomes … incredible, in the “not credible” sense of the term.