SHANGHAI—China plans to tighten oversight of online private-car-hailing services, a market in which Uber Technologies Inc. and its Chinese rivals plan to spend billions of dollars to generate potential growth.
If strictly enforced, the rules could deal a blow to such companies, crimping their carpooling services in China and requiring them to operate in a higher-cost, regulated fashion akin to traditional taxis.
An Uber spokeswoman said the company is in close communication with Chinese regulators and would follow all new rules.
One draft measure forbidding drivers from working for multiple ride-hailing app providers at the same time also raises the possibility the regulations could be used to tip the balance toward a favored provider in China.
But the companies have been upbeat about the guidelines, saying they will bring regulatory clarity. It is unclear how strictly the rules will be enforced or what they will look like in their final form.
In draft rules published on Saturday, the Ministry of Transport said online private-car-hailing app providers must place their servers in China, share their data with local transport authorities, register their cars as taxi services, sign labor contracts with their drivers and insure their cars and passengers.
In addition, foreign companies must obtain a license to carry out telecommunications business in China and are subject to national security checks, the ministry said. It didn't mention Uber by name in the lengthy document.
The rules, which are open to public opinion in the next month, present a path for legalization in China for Uber and Chinese private-car-hailing app provider Didi Kuaidi Joint Co. Both have been locked in a turf war in the past year and foresee a market of more than 700 million potential urban commuters and a growing middle class that can increasingly afford upgrading from traditional taxis.
A Didi Kuaidi spokeswoman said the company welcomed regulation and would study the report, but she declined to comment on any specifics.
Such businesses currently operate in China, but in a gray area. So far, private taxis have been illegal in most of the country, as in many other nations. According to a report by China's official Xinhua News Agency in July, more than 1,200 private drivers from Didi Kuaidi and 170 from Uber were caught by Beijing authorities this year on suspicion of running illegal taxi services and evading taxes.
Didi Kuaidi and Uber have invested heavily in private-car-hailing services, which an increasing number of Chinese use via smartphone apps. Didi Kuaidi has raised $3 billion, and Uber has earmarked more than $1 billion for the Chinese market.
While regulators have been slow to catch up with developments in this hot market, they are gaining ground. On Thursday, the transport authority in the city of Shanghai said it had granted Didi Kuaidi, which has an estimated value of $16 billion and is backed by Chinese Internet giants Alibaba Group Holding Ltd. BABA 1.49 % and Tencent Holdings Ltd. TCEHY -0.54 % , a license to operate an online car-booking platform in that city.
Didi said the license was the first of its kind in China and that it is seeking more licenses from other cities. Uber is also seeking licenses from Chinese cities
While the rules published by the transport ministry legalize ride-hailing nationwide for the first time, Uber and Didi Kuaidi would have to change their businesses if the rules are adopted in their current form.
For example, the proposed regulations require all drivers engaged in private taxis to have three years of experience in driving, to limit the number of seats in a car to no more than seven and they ban carpooling and ride-sharing services offered by private drivers without a taxi license.
Uber said that to localize its Chinese business, Uber China has officially registered in Shanghai as a separate entity called Shanghai Wubo Information Technology, run by Chinese managers. It has obtained the requisite licenses and qualifications as an Internet company and placed its servers in China, the company added.
And Uber in December tapped China's top search-engine operator Baidu Inc. BIDU 2.10 % as a strategic partner.
Still, as of the end of June, Didi Kuaidi controlled more than 80% of the Chinese private-car-hailing market by ride volume, according to market research firm Analysys International, compared with 15% for Uber. But Uber has declared China as its most important overseas market and has set out a plan to expand to 100 Chinese cities in the next year from about one-fifth of that total at present.
—Rose Yu in Shanghai and Eva Dou in Beijing contributed to this article.
Source: China Tightens Oversight of Private Car-Hailing Services
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