OREANDA-NEWS. Fitch Ratings says China's new regulations on the ride-sharing industry lift concerns over the industry's legality, but introduce new uncertainties to the competitive landscape as major operators, such as Didi Chuxing (Didi) and Uber, adjust to comply with the new rules. Longer-term, Fitch believes the new policy should improve the ride-sharing industry's long-term viability.

It is unclear how the government would implement a key component of the new policy, unveiled by the State Council on 28 July, barring ride-sharing companies from charging fares at "below cost". Fitch believes that even if "official" fares were raised above that of regular taxis - which in theory, would prevent price wars - operators might try to lower the effective cost to consumers through marketing and promotion activities, which would be difficult to regulate. It is also unclear if Chinese consumers, having grown accustomed to heavily subsidised rides, would be willing to pay higher fares, if necessary.

The new rules also require drivers to pass certain requirements and register with local authorities, effectively raising the entry barrier. These requirements should alleviate consumers' concerns over safety, but might also limit the availability of cars in the near-term.

Didi has roughly 80% of China's ride-sharing market by the number of rides, followed by Uber China. The industry has focused on customer acquisition over the past two years, which has resulted in aggressive subsidies and a price war amongst the major operators. None of these companies is profitable, though they have been able to continue operating through multiple rounds of equity investment.

The new policy may come as a disappointment for higher-end business-to-consumer (B2C) operators such as UCAR as it does not distinguish between the B2C and customer-to-customer (C2C) business models. B2C operators employ a team of drivers, while the much-larger C2C operators such as Didi and Uber rely on independent contractors. Although UCAR is relatively small - it currently ranks fourth in terms of number of rides per day; UCAR says it can differentiate itself by offering more consistent service and improved customer experience. It remains to be seen whether these factors will be sufficient to compete against Didi's dominant scale and market coverage.