China’s biggest ride-hailing company Didi Chuxing has now suspended its carpooling services after a passenger was killed. The company is also likely to face tighter oversight that will squeeze driver numbers and extend customer waiting times.
The incident follows a similar killing by a Didi driver last May. This triggered public and government backlash and created an opening for rival services to chip away at Didi’s dominance in China, according to industry analysts.
“There is certainly room for others to serve the market, and such incidents expose an apparent weakness in Didi’s business model: aggressive expansion without adequate control of the integrity of the drivers on their platform,” stated Bill Russo, who is the head of Shanghai-based consultancy Automobility Ltd.
Didi founder Cheng Wei and President Jean Liu issued a lengthy and deeply apologetic letter late on Tuesday, stating that “our vanity overtook our original beliefs.”
The company controls 90 percent of the Chinese ride share market, according to a Bain report in May. Didi claims that it makes 10 billion trips a year.
The company is valued at $56 billion in a fundraising round last year. It is now trying to expand globally and is considering a giant initial public offering as early as next year. It also bought rival Uber’s China business arm in 2016.
However, now it may have to slowdown. This week regulators from major cities, which include Beijing, Chongqing, Dongguan, Guangzhou, and Shanghai, ordered the company officials to suspend drivers who don’t have proper licenses and stop new registrations for unqualified drivers, according to government statements and local media.
Analysts believe that the company will have to go under tougher safety measures and driver screenings. Meanwhile, Didi claims that it rejects tens of thousands of unqualified driver applications on a daily basis.
Didi had already suffered mounting frustrations over the waiting times and concerns that it had not exerted enough efforts after the killing in May. Drivers had complained that working for the company had already become less lucrative.
The company has stated that it would “do everything we can technologically and institutionally to prevent crime.” It added that it uses technology to improve efficiency.
It also said that based on an eight-hour working time per day, its drivers earned 6,000 to 7,000 yuan ($873 to $1,018) every month, around thrice the 2,120 yuan minimum wage in Beijing.
In 2016, the official Beijing Youth Daily newspaper reported that drivers earned more than 10,000 yuan each month at the height of the subsidy war between Didi and Uber. This made them popular employers during that time.
There are over 80 businesses with license to operate in what the Bain report said is a $30 billion Chinese ride-hailing sector, which includes Tencent-backed Meituan Dianping, CAR Inc, and Geely Holding Group’s CaoCao Car.
BWorldFinance is your primary source of news in the financial market, technology, and more. Visit bworldfinance.com now and get the latest happenings in the market. Register an account now and begin your investing journey!