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Article: China's Regulatory Approach to the Sharing Economy: A Perspective on Ride-hailing

29 July 2020

By Jayne He

 

The rising sharing economy has introduced a new lifestyle to consumers, but it also has evoked legal issues from many aspects. In China, ride-hailing service has developed in the recent years before the COVID-19 outbreak. However, problems such as competition and safety issues of passengers reveal that regulation on this emerging industry is a pressing issue to foster a healthy development of this sector.  

A co-authored research paper by Co-Director of the Herbert Smith Freehills China International Business and Economic Law (CIBEL) Centre Professor Heng Wang and Associate Professor Huiqin Jiang of Zhejiang Sci-Tech University, titled “China’s Regulatory Approach to The Sharing Economy: A Perspective on Ride-Hailing” analyses the approaches that China adopted in regulating sharing economy and make suggestions for the regulators to “maintain a proper balance between regulation and innovation”.

In this paper, the authors took a historical review on the approaches China deployed in regulating this novel industry and identified that self-regulation, market-based regulation and government regulation have been combined in regulating the ride-hailing industry, and the country has shifted from a laissez-faire regulatory approach before 2015 to a neutral and multi-party regulatory approach since 2016 with the introduction of Opinions on the Deepening of Reform to Promote the Healthy Development of the Taxi Industry.

Self-regulation, which existed since the beginning of the ride-hailing industry, is mainly achieved by a four-party contract among the platform company, a car rental company, a labour dispatch company, and the driver. One may argue that it seemingly has transferred the risks to the drivers and passengers and hence left the platforms insufficiently regulated. This has raised public concerns about the safety of passengers following several criminal cases related to online taxi booking services in China.

Market-based regulation, which accompanied the development of the industry, has caused price war among the service providers and the customers can benefit from such competition in the short term. However, this may trigger the investors to make strategic decisions to mitigate the impact from such competition, such as the acquisition of Uber China by Didi in 2016. 

Government regulation came last in regulating the industry. It seems China has treated this novel industry with the existing regulation provisions of the traditional taxi service industry, hence may affect the development of sharing economy. 

There are many uncertainties in this emerging industry such as the legal status of sharing economy actors and externalities, which bring challenges to the regulators. China appears to call for the regulation of the sharing economy under an “accommodating and prudent principle”. Its practice remains to be seen. A combination of these three approaches could be a way to regulate this novel industry to balance various factors, including investor’s interest, and the welfare of customers and drivers. For instance, regulators may give “more affirmative value to self-regulation and market-based regulation” as “self-regulations are capable of yielding quick, innovative and sharing-specific regulatory responses, from which government regulators can review and evaluate the nature and operational impact regularly.”

The paper has been published at Journal of Law, Technology & Policy, and full text is available on ResearchGate or SSRN.