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Uber and Didi are now legal in China but the struggle to sign up drivers may continue

The drafted guidelines require drivers to have at least three years of experience and less than 380,000 miles on their car.

Heavy Smog Hits East China Photo by VCG/VCG via Getty Images

The Chinese government introduced new regulatory guidelines today that would legalize ride-hailing companies like Uber and homegrown player Didi Chuxing.

Drivers will now be able to work for these services with private cars so long as they have at least three years of experience. Previously, Uber and Didi operated in a legal gray area by allowing some of their drivers to use their privately owned cars though some local authorities, such as those in Shanghai, have granted one or both companies permission to operate private cars.

When the guidelines go into effect in November, China will be the largest country to pass nationwide ride-hail guidelines. Philippines was the first country to make the move and was soon joined by Mexico, Estonia and Australia.

But that doesn’t mean there isn’t a little bit of wiggle room, and consequently room for lobbying, when it comes to what the actual implemented laws will look like. While the country is providing nationwide guidance, laws will be decided on a city-by-city basis.

Some of the drafted guidelines, which Bloomberg first reported, may pose a problem for Didi and Uber. Specifically, in addition to having at least three years of driving experience, the guidelines will require drivers to retire their cars after driving 600,000 km.

As of now, many drivers already have three to five years of experience, but the requirement to retire the car may pose, or at least exacerbate, a problem the companies already face.

In parts of China, like Beijing, local authorities have limits on how many new licenses will be issued per month in order to alleviate pollution and smog concerns. So drivers who have cars with 380,000 miles may not be able to get a new license to continue to drive for Uber or Didi right away.

But Didi, which published an open letter in response to the new guidelines, wrote that this guideline is better than what was initially proposed. “Instead of an arbitrary 8-year service limit after which a car is mandatorily scrapped, vehicles on our platform may now run until they reach an aggregate mileage of 600,000 km, which is more aligned with a ride-share model with a large number of part-time drivers,” the company wrote.

However, Didi expressed a bit of concern around the rule that required local taxi authorities to manage the license application process.

“We call for local authorities to adopt market-driven approaches that encourage innovation and new business models in order to continue serving the real needs and interests of our ecosystem participants,” Didi wrote. “One of the greatest merits of ridesharing is to mobilize and efficiently allocate fragmented and under-utilized resources to meet fluctuating transportation demands. We also hope local practices will allow for separate treatment of part-time drivers to foster supply-side reform in the transportation industry.”

Uber was also optimistic about the signal the government was sending.

“We welcome the new regulations, which send a clear message of support for ridesharing and the benefits that it offers riders, drivers, and cities,” Zhen Liu, SVP Corporate Strategy of Uber China, said in a statement. “Uber China is regulation-ready, and we look forward to working with policy makers around the country to put these regulations into practice.”

In a blogpost the company posted, however, Liu makes it clear that though the company is optimistic, the details of local regulations are still up for debate. Given Uber’s history with regulators, it’s not likely the company will shy away from pushing for what it wants.

“While the details of how these regulations are implemented will fall to cities and provinces, this is a welcome step in a country that has consistently shown itself to be forward-thinking when it comes to innovation,” he wrote.

Nevertheless, the guidelines are a significant step for both Uber and Didi. Initial drafts of the regulatory guidance proposed requiring all ride-hail cars to be commercially licensed and that each company establish a local office in every city they operate in. The transport ministry, at the time, also complained of unfair competition for existing taxi operators.

Soon after, Didi struck partnerships with a number of taxi companies. These partnerships, on the one hand, allowed these companies to leverage Didi’s ride-matching platform, thus leveling the playing field and, on the other hand, alleviated any supply issues Didi faced as a result of the country’s strict limitations on car ownership.

The initial drafts of the regulation also proposed prohibiting drivers from working with more than one company. That would compound the already expensive subsidy war Uber, which is operating in more than 60 cities and plans to be in 100 by the end of the year, is embroiled in with Didi. Under the new regulatory guidelines, however, drivers can continue to work with more than one company at a time which might make it easier for the companies to eventually back away from pouring their money into fighting for drivers.

That’s important because as it stands now, the two companies offer discounts to attract riders and promotional subsidies to attract drivers, creating a cycle where drivers and riders often flock to the company offering more money. This in turn makes it difficult for either company to stop offering supplemental money on top of each fare and, consequently, make money on each ride.

As of February, Uber CEO Travis Kalanick said Uber is losing $1 billion in the country. Didi, which is in 400 cities, has previously said the company is profitable in more than half the cities it operates in. While Didi has also previously said they were spending less on subsidies in many of their markets, Kalanick publicly accused the company of spending $70 million to $80 million a week.

This article originally appeared on Recode.net.

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