Meituan's attempt to enter car-hailing market faces another setback

Meituan, China's leading online platform for ordering food, buying movie tickets, and booking restaurants, launched its own ride-hailing service in Shanghai on Wednesday. But the company's attempt to grab a share of the growing car-hailing market suffered an unexpected setback, reports China National Radio.

Just hours into their new service, Meituan was contacted by Shanghai's traffic authority regarding administrative irregularities.

Photo taken on March 22, 2018 shows a user downloading Meituan's car-hailing app on her smartphone. [Photo: China Plus]

In order to compete with its biggest rival Didi Chuxing, Meituan offered several tempting benefits to potential drivers. Meituan only charges 8 percent of the fare, significantly less than the 20 percent charged by Didi. Additionally, drivers who join the platform early enough are exempt from commission charges for the first three months.

It was these subsidies that caught the attention of authorities in Shanghai, who suspected that Meituan was engaging in anti-competitive behavior. The company had also failed to lodge information with an online car-hailing supervision platform as required by local regulations.

There are explicit requirements that share car services have to meet in Shanghai, according to Ma Fei, deputy director of Shanghai Urban Transportation Administrative Department. Drivers have to obtain a municipal license, operations data has to be put into the supervision system, and no price discounting is allowed that might disturb market order. The authority also requires that Meituan not offer price markup functions like tips for drivers on its car-hailing app, and that it doesn't launch its taxi service until it has met all the regulatory requirements.

Meituan has responded that they will take steps to fix the problems so as to abide by Shanghai's regulations.

This is not the first time that Meituan's car-hailing service has run into trouble. Earlier this year, an attempt by Meituan to start its service in Beijing took a step backwards after it was warned by the municipal transportation authorities about its lack of business qualifications for online ride-hailing.

Meituan had plans to roll out ride-hailing services in several other cities including Chengdu, Hangzhou, Wenzhou, Fuzhou, and Xiamen. But the company faces stiff competition as industry giant Didi takes up around 90 percent of the ride share market and market supervision is getting tougher.