Chinese regulators on Tuesday announced new rules to rein in the country’s ride-hailing industry in a move that increases pressure on the sector’s embattled leader Didi.
The rules from six regulatory agencies include limits on fees companies can earn from each ride they dispatch and urge them to provide benefits such as insurance for their drivers.
It is the latest development to hit SoftBank-backed Didi and other Chinese tech companies as Beijing ratchets up regulatory scrutiny of the sector and seeks to reshape its digital economy.
Didi, which listed in New York in June, has lost ground to rivals since July, when Chinese officials started investigating the company on data security grounds in connection with the US share offering.
The company remains prohibited from signing up new users and China’s cyberspace regulator has ordered app stores to remove 25 of Didi’s other apps, including those that register new drivers.
The head of a large private equity firm with a stake in the company said Chinese regulators were still considering their options for punishing the group.
“Delisting is one extreme option,” he added. “The other extreme is staying with the status quo, which is not feasible because the business cannot sustain a prolonged period of time with no new customer acquisitions and no new product functions or releases.”
The new guidelines also push for ride-hailing companies to formally employ some drivers, a change that Didi had previously warned would require it to “fundamentally” change its business model.
In China, as in other countries, authorities and companies have debated whether ride-hailing groups can treat drivers as independent contractors or need to formally employ them.
Li Chengdong, head of internet think-tank Haitun, said the rules were intended to give drivers the option to become full-time employees and enjoy related benefits.
“For Didi that would mean costs would go way up, it would have a huge impact.”
In its prospectus, Didi warned investors that reclassifying drivers as employees “could require us to fundamentally change our business model, with repercussions that are difficult to anticipate”.
Aidan Chau, at China Labour Bulletin, said the government had been trying to help workers in the gig economy receive benefits but noted it continued to be a challenge for workers.
“The execution of this well-intentioned policy will be difficult,” he said of the latest ride-hailing rules.
Didi did not immediately respond to a request for comment. The company and its executives have said very little publicly since Beijing launched a multi-agency investigation into its data practices.
Didi has also skipped publishing quarterly earnings reports and holding customary calls with Wall Street analysts, making it difficult for shareholders to understand how the inquiry is affecting its business.
Looser US rules for foreign groups mean Didi has no obligation to report quarterly financials. Regulators also ordered Didi and other ride-hailers to use only drivers with the required industry licences, another hurdle for the Beijing-based group.
Didi’s shares have fallen more than 44 per cent since its New York IPO and rivals have raised new funding rounds from state-owned funds as they try to lure its customers with promotions.
Additional reporting by Emma Zhou from Beijing
