BEIJING (Reuters) - Chinese authorities announced a broad crackdown on China’s ride-hailing industry on Wednesday, targeting market-leader Didi Chuxing with fines following the deaths of two passengers in separate incidents earlier this year.
Didi has violated multiple safety rules, presenting a “major safety hazard”, including failing to properly flag high-risk drivers and improperly handling deposits, China’s Ministry of Transport said in a notice on an official social media account.
“The driver’s qualifications and background checks are not in place. The company’s management of people and vehicles is out of control,” the ministry said, referring to Didi that accounts for around 90 percent of China’s ride-hailing market.
The ministry said it would “severely crack down” on ride-hailing firms hiring illegal drivers and fine Didi’s executives and legal representatives an undisclosed amount of money.
Didi, backed by Japan’s SoftBank Group Corp (9984.T) and the world’s top ride-hailing firm Uber, drew widespread criticism on social media earlier this year after two women were assaulted and killed in separate incidents involving drivers using its carpool service, Didi Hitch.
In one of the incidents, the driver was able to circumvent safety controls on Didi’s app to use a relative’s account, despite being previously flagged for harassment.
Clocking roughly 30 million rides a day, Didi is currently the world’s No.2 ride-hailing firm behind Uber.
But it has lately been struggling to counter a marked increase in wait times in large Chinese cities, where residence restrictions on drivers as part of a broader push to regulate the industry have slashed the number of available rides.
The ministry said that there are still a large number of illegal cars and it will urge local authorities to target unqualified drivers, which could exacerbate the shortages.
“Didi’s service times have been drastically affected over the last few months following removal of drivers from the platform who did not have local registration in the cities that they were driving in,” said Ben Cavender, Shanghai-based principal at China Market Research Group.
“The majority of consumers that we speak to who use ride sharing platforms used Didi first but are increasingly looking at other options.”
Didi’s business has already been impacted by the suspension of its carpooling service that was advertised by Didi as a way to meet people. Authorities said on Wednesday that the suspension of Didi Hitch would continue indefinitely.
“As a young company, Didi still needs to work on many shortcomings and imperfections that have brought the public great concern,” Didi CEO Cheng Wei said in a statement.
“Even if the industry might not be able to completely root out criminal behavior or accidents, we will try our upmost best to protect riders and drivers.”
To help rebuild consumer trust, Didi has said it will expand its in-house customer service team to 8000 people from 5000 as part of a wider 140 million yuan ($20.14 million) upgrade.
Didi is investing heavily overseas, including South America and Australia, where it has launched its own service and is acquiring local competitors in a fierce battle with Uber.
Since buying Uber’s China business in 2016, Didi has dominated the domestic ride-hailing market. But new rivals have begun entering the fray, including a service backed by Meituan Dianping (3690.HK), with the government looking to reduce anti-competitive behavior in the industry.
Reporting by Cate Cadell; Editing by Christopher Cushing and Himani Sarkar