computer law & security review 35 (2019) 145–156

Available online at www.sciencedirect.com

journal homepage: www.elsevier.com/locate/CLSR

An experimental model of regulating the sharing

economy in China: The case of online car hailing

Hongzhen Jiang a, Xiaoyu Zhang b,∗

a KoGuan Law School, Shanghai Jiao Tong University, Huashan Road 1954, Shanghai 200030, China
b Administrative Law Research Centre of Chinese Academy of Governance, Changchunqiao Road 6, Beijing 100089,
China

a r t i c l e i n f o a b s t r a c t

Article history: Online car hailing represents a disruptive innovation model in the sharing economy and
requires a new regulatory response. China’s attempts to regulate this emerging industry
can be considered highly experimental model. To relieve the pressure from offline competi-
Keywords: tors and to clarify the ambiguous legal status of online car hailing, China currently enforces
Sharing economy a strict regulatory scheme through what can be described as a central-local dual system.
Uber Questions, however, have arisen regarding the legality, proportionality and effectiveness of
Online car hailing this approach. Moreover, the current system’s choice for a segmented market strategy heav-
Experimental regulation ily impairs the sustainable development of the sharing economy. Therefore, the adoption of
Central-local dual system Internet-based regulations for online car hailing might create better prospects to establish
a fairly competitive market as well as to further boost the ever dynamic Internet sharing
economy in China.
© 2019 Hongzhen Jiang and Xiaoyu Zhang. Published by Elsevier Ltd. All rights reserved.

combination with carpooling applications such as Uber and

1. Introduction DiDi (hereinafter, online car hailing), is a typical example of
a sharing economy service pertaining to transportation. Since
The sharing economy is one of the most fascinating and elu-
the emergence of such services many heated discussions re-
sive business models of the 21st century which had disrupted
garding questions relating to “innovation or regulation?” have
innovation in various industries, including the traditional taxi
taken place.3 Questions whether or not and/or how the op-
industry.1 The current sharing economy is highly dependent
eration of online car hailing should be regulated as opposed
on Internet technology and Internet platforms. For those rea-
to their direct competitors in the traditional (offline) taxi ser-
sons, it is also been considered as a type of internet econ-
vices, were often mixed with political considerations.4 Inter-
omy or platform economy.2 In China, online car booking, in
nationally, too, the expansion of Uber and Airbnb has triggered

∗
Corresponding author.
E-mail addresses: jianghongzhen@sjtu.edu.cn (H. Jiang), zhangxiaoyu@nsa.gov.cn (X. Zhang).
1
C. M. Christensen, M. E. Raynor and R. McDonald, “What is Disruptive Innovation”, [2015] 93 Harvard Business Review 44-53; G. Dudley,
D. Banister and T. Schwanen, “The Rise of Uber and Regulating the Disruptive Innovator”, [2017] 88 The Political Quarterly 492-499.
2
K. Zale, “When Everything Is Small: The Regulatory Challenge of Scale in the Sharing Economy”, [2016] 53 San Diego Law Review 949; I. Scott
and E. Brown, “Redefining and Regulating the New Sharing Economy”, [2017] 19 University of Pennsylvania Journal of Business Law 553.
3
Q. Tang, “The Regulatory Approach for Sharing Economy Like Tailored Taxi Service”, [2015] 4 China Jurisprudence 286.
4
X. Song, “The Application of Advocacy Coalition Framework to Policy Change of Car-hailing Regulation in China”, [2017] 384 Chinese Public
Administration 103.

https://doi.org/10.1016/j.clsr.2018.12.008
0267-3649/© 2019 Hongzhen Jiang and Xiaoyu Zhang. Published by Elsevier Ltd. All rights reserved.
146 computer law & security review 35 (2019) 145–156
similar debates as to the regulation of the sharing economy.5
While most scholars agree that the distinctive features of the
sharing economy necessitate the development of fresh and in-
clusive regulatory responses,6 China adopted a stricter regu-
latory framework for the online car hailing industry than that
of the traditional licensed taxi industry. Given the share and
pace of China’s sharing economy worldwide,7 China’s exper-
imental model might offer a fresh look on how to establish
innovation-friendly regulatory frameworks that reconcile new
and traditional economies in the era of the sharing economy.8
Subsequently, this article elaborates on the experimental
regulatory approach of the online car hailing in China. Exper-
imental regulation can be traced back to the philosophy of
experimentalism.9 Unlike attempts to perfect regulatory en-
deavors by evaluating their implementation,10 Chinese schol-
ars suggest that experimental regulation can effectively re-
spond to the challenges brought about by the emergence of
new economic models in the long-term.11 Although the term
“experimental regulation” is relatively new in China, similar
practices have existed elsewhere for around 40 years.12 Based
on the doctrine of “crossing the river by feeling the stones,”13
China has constantly relied upon the use of temporary,
5
For problems of employment relationships, consumer rights
protection, spatial regulating, racial discrimination, and so on, see
D. D. Acevedo, “Regulating Employment Relationships in the Sharing
Economy”, [2016] 20 Employee Rights and Employment Policy Jour-
nal 1; M. N. Widener, “Shared Spatial Regulating in Sharing-Economy
Districts”, [2015] 46 Seton Hall Law Review 111; M. Maese, “Rethink-
ing Host and Guest Relations in the Advent of Airbnb and the Shar-
ing Economy”, [2015] 2 Texas A&M Journal of Property Law 481;
C. Koopman, M. Mitchell and A. Thierer, “The Sharing Economy
and Consumer Protection Regulation”, [2015] 8 The Journal of Busi-
ness, Entrepreneurship & the Law 529; B. Edelman, M. Luca and D.
Svirsky, “Racial Discrimination in the Sharing Economy: Evidence from
a Field Experiment”, [2017] 9 American Economic Journal: Applied
Economics 1.
6
S. R. Miller, “First Principles for Regulating the Sharing Economy”,
[2016] 53 Harvard Journal on Legislation 147.
7
China is one of the largest sharing economy markets in the
world. As of June 2018, China had 299 million car hailing users,
with user annual growth rate reaching 26,5%. See Statistical Report
on Internet Development in China 2018, China Internet Network
Information Center (CNNIC) released in January 2018.
8
S. Ranchordás, “Innovation-friendly Regulation: The Sunset of Reg-
ulation, the Sunrise of Innovation”, [2015] 55 Jurimetrics Journal, 201.
9
For more on philosophy of legal experimentalism in Western
countries, see C. F. Sabel and W. H. Simon, “Minimalism and Exper-
imentalism in the Administrative State”, [2011] 100 Georgetown Law
Journal 53.
10
H. A. Posen, “Ridesharing in the Sharing Economy: Should Regulators
Impose Uber Regulations on Uber” [2016] 101 Iowa Law Review 405.
11
S. Ranchordás, “Sunset Clauses and Experimental Regulations:
Blessing or Curse for Legal Certainty?” [2015] 36 Statute Law
Review 1.
12
China’s economic reform (“reform and opening-up”) began in
the pilot zone. In 1980, China created the Shenzhen Special Eco-
nomic Zone, and allowed Western companies to invest and set up
factories within it. See J. Zhong, “The Historical Course of the Economic
Reform and Opening- up to the Outside World of the Shenzhen Special
Economic Zone: Its Enlightenment of Experiences”, [2008] 112 Journal of
Shenzhen University (Humanities & Social Sciences) 17.
13
This statement was made by Deng Xiaoping to describe China’s
gradual economic reforms. This phrase is well-known in China
(author’s note).
flexible, fault-tolerant approaches to regulation when facing
challenges in the course of its economic transformations dur-
ing the past forty years since its reform and opening up.14
This paper examines the gradual progression of China’s ex-
perimental regulation of online car hailing. Section 2 explains
the background of regulatory alternatives. The deficiencies of
free growth of the online car hailing business, as will be ar-
gued, highlighted the need for an urgent regulatory response.
Section 3 illustrates the current regulatory framework from
a central-local dual perspective. Section 4 reviews the exper-
imental character of this framework. Here, the article high-
lights the negative aspects of China’s experimental approach
to regulation, especially pointing out that the current system’s
choice for a segmented market strategy heavily impairs the
sustainable development of the sharing economy. After in-
troducing several positive attitudes that have been adopted
by the Chinese government and the judiciary, Section 5 pro-
poses some new suggestions to further develop the regulatory
framework for online car hailing in China. The final section
concludes with some final remarks.
2. Background of current regulatory
alternatives
2.1. Competitive issue: an overview of its development
stages
In China, Internet companies are primarily responsible for the
development of the software that acts as the foundation for
the online car hailing industry. As information asymmetry is
a serious problem in the context of the operation of tradi-
tional taxis, the integration of instant messaging services has
allowed car hailing platforms to effectively provide matching
information between taxi drivers and customers, thus reduc-
ing the vacancy rates of running taxis.15 In the early days fol-
lowing the emergence of the software there was no competi-
tion, and the traditional taxi industry benefited from the new
technology.16
Later, the developers of the software made several en-
hancements, and a new online service named “tailored car
booking” or “special car” was introduced. This was a special
service designed for VIP passengers guaranteeing their airport
pick-up service. At this stage, Internet platforms began to ac-
quire more mid-sized cars, or mid-sized luxury cars, at more
expensive prices to provide high-end customers with a bet-
ter service. Due to these high prices, only a small number of
people could afford to use the tailored car (special car) book-
ing option. Consequently, there was only limited competition
between tailored cars and traditional taxis.17
More recently, Internet companies expanded the provision
of their services (i.e. their software) to the general public, and
14
S. Heilmann, “Policy Experimentation in China’s Economic Rise”,
[2008] 43 Studies in Comparative International Development 1.
15
W. Fu, “Internet Plus and Governmental Regulatory Alternatives”,
[2015] 2 China Law Review 52.
16
J. Wang, “The Regulatory Dilemma and its Resolution of China’s On-
line Car Booking Market”, [2016] 96 Administrative Law Review 49.
17
J. Ling and G. Chen, “The Taxi Software Pushes the ‘Special Car’: The
Price Doubles Like ‘Black Car’”, Xinhua News Agency 2014-10-12.
 computer law & security review 35 (2019) 145–156
began to recruit a large number of private car drivers. In order
to seize a share of the market, these companies offered heavy
subsidies to both consumers and drivers. The subsidy war
between these companies then intensified, causing serious
knock-on effects for the traditional taxi industry.18 Since the
prices for traditional taxi services are fixed by the government,
the traditional taxi industry was at a distinct disadvantage in
relation to online car hailing companies. Due to protests of
drivers organized by traditional taxi companies, local govern-
ments were placed under serious political pressure,19 which
ultimately culminated in the adoption of new regulations gov-
erning this new online car hailing business model.20
2.2. Predicaments of statutory application and conflicts of
judicial attitudes
In addition to the pressure from the drivers of traditional
taxis,21 long-term uncertainty over the legal status of the on-
line car hailing business did not only affect its level of invest-
ment, it also caused enforcement problems at both adminis-
trative and judicial levels. Proponents of the online car hailing
industry insisted that as long as no regulation had been for-
mulated, the law could not prohibit car hailing business mod-
els. This encouraged private drivers to freely engage in on-
line car sharing.22 Opponents argued that private cars should
be banned because they “provide taxi services without rele-
vant licenses and qualified certifications.”23 At the municipal
level, various local governments continue to hold divergent at-
titudes to the matter. This has led to a segmented approach
to regulation and fragmented enforcement across administra-
tive regions.24
Inconsistent judicial decisions have exacerbated this un-
certainty and confusion. For example, the subsequent three
cases illuminate the controversial attitudes from the Chinese
judiciary (see Table 1).
These cases involved a private driver operating an online
car hailing business that was imposed a penalty by the lo-
cal bureau. The three courts answered differently to three
questions: (1) whether the private businesses were legal; (2)
whether the agency penalties were legal, and (3) whether the
original penalty decisions shall be maintained by court. The
conflicting judicial attitudes render the statutory application
18
H. Xiao, “When Does the Platform Companies End the ‘Burn Money
War’?”, Shenzhen Economic Daily, 2014-2-14; Z. Cao, No Starting
Price, Another Subsidy War, Beijing Daily, 2015-5-14.
19
X. Wang, “The Online Car Hailing Service Shocked the Taxi Market
and Caused Mass Protest”, China United Business News, 2015-1-19.
20
X. Song, “The Application of Advocacy Coalition Framework to Policy
Change of Car-hailing Regulation in China”, [2017] 384 Chinese Public
Administration 103.
21
Y. Yang, Y. Zhang, C. Cheng and M. Li, “Research on Public Feedback
Adoption of ‘the Online Car Hailing Regulation Policy’ Based on Proba-
bilistic Topic Modeling”, [2017] 172 E-Government 67.
22
C. Lin and S. Yang, “The Legal Concerns on Internet-booked Car-
sharing”, [2016] 9 Legality Vision Issue 194.
23
Z. Jin, “Facing the Issue of Legality to China’s Online Booking and
Renting Car”, [2015] 12 Journal of Macro-Quality Research 100.
24
For example, Shanghai suppressed online car hailing by treat-
ing the new business as a “black taxi” operation, but in Guangzhou,
the local government warmly welcomed the new economic model
and promoted cooperation between the government and industry.
147
more difficult and highlight the necessity of a formal regula-
tory response from the government.
3. The temporary regulatory framework: a
central-local dual perspective
As an innovation-driven economy based on new technology,
the sharing economy does not represent a gradual and contin-
uous innovation from existing technologies, but one through
which through major technological breakthroughs are accom-
panied by changes in external relations with existing social
institutions.25 An experimental and flexible regulatory ap-
proach, rather than a fixed one, is more suitable for use in such
an environment.26 Based on its typical method of legal experi-
mentalism,27 China responded to the challenges posed by car
hailing platforms by leveraging its central-local dual regula-
tory framework to develop a trial-and-error system.
3.1. The Measures: central regulatory guideline
Compared with the original draft measures,28 the Interim Mea-
sures for the Administration of Online Taxi Booking Business Oper-
ations and Services (hereinafter, the Measures) – jointly issued
by 7 central departments in July 201629 – are noticeably less
onerous and stringent.30 Instead, they maintain the license-
oriented approach to regulation traditionally targeted at the
providers of traditional taxi services. Consequently, a mixed
type of taxi service, combining traditional cruising taxi and on-
line booking taxi, was established.31
3.1.1. Regulatory obligations to platforms
Defined as “operators of online car hailing,” platform com-
panies are formally treated as commercial operators rather
than Internet service providers.32 According to Article 5 of the
25
L. Hou, “Destructive Sharing Economy: A Passage from Statues to
Contract”, [2018] 34 Computer Law and Security Review 965.
26
G. Domenech-Pascual, “Sharing Economy and Regulatory Strate-
gies towards Legal Change”, [2016] 7 European Journal of Risk Regu-
lation 717.
27
X. Wang, “In the Entanglement, the Network Car Reform”, [2016] 530
People’s Tribune 64.
28
The main approaches adopted were to imitate the traditional
taxi regulatory scheme. See, T. Wu, “Institutional Logic of Regulation
on Online Car Hailing”, [2016] 8 Legal Journal of Finance and Eco-
nomics 74.
29
The Interim Measures for the Administration of Online Taxi Booking
Business Operations and Services, Order No. 60 [2016] of the Ministry
of Transport, the Ministry of Industry and Information Technology,
the Ministry of Public Security, the Ministry of Commerce, the State
Administration for Industry and Commerce, the General Adminis-
tration of Quality Supervision, Inspection & Quarantine, adopted
on November 1, 2016.
30
W. Fu, “Be Wary of the ‘New Bottle of Old Drugs’”, China Times,
2016-8-15.
31
Guiding Opinions of the General Office of the State Council on Deep-
ening the Reform to Promote the Sound Development of the Taxi Industry,
Order No. 58 [2016] of the General Office of State Council, adopted
on July 28, 2016.
32
After the issuance of Measures, Uber China and DiDi’s Merger
was announced to the public. [2018] http://finance.china.com.cn/
roll/20160802/3839422.shtml.
148 computer law & security review 35 (2019) 145–156

Table 1 – Conflicting judicial attitudes in individual cases.

Judiciary attitudes Case 1: Chen Chao casea Case 2: Fan Yunyu caseb Case 3: Cai Ping casec

Private business Illegal Illegal Legal

Agency penalty Legal Illegal Illegal
Judicial decision Withdraw Maintain Withdraw

a
Chen Chao vs. Urban Public Transport Management and Service Center of Jinan, Shandong Province (2015.02.13). The court concluded that
the private behavior was illegal, but the punishment was also illegal because of its overburden to private driver. Consequently, the original
penalty decision was revoked by court.
b
Fan Yunyu vs. Enforcement Bureau of Transport Commission of Shanghai City (2015.12.29). The court firmly illegalized the car sharing
operation exercised by the private driver. By defining the private practice as “operating taxi business without relevant licenses and qualified
certifications,” the court upheld the bureau’s decision and imposed a fine on the private driver.
c
Cai Ping vs. Transport Commission of Guangzhou City, Guangdong Province (2016.05.16). The court hold that it was not in accordance with
the basic principles and doctrines of the rule of law to define the new practice as “illegal operation” and revoked the penalty decision.

Measures, an online car hailing operator shall be capable of
providing online and offline services. The same article pre-
scribes the conditions that need to be met in order for an on-
line taxi booking business permit (hereinafter license No.1) to
be issued to successful applicants. Once a business permit
is granted, it shall specify the business scope, areas and the
terms of the permit holder’s operations. The Measures also re-
quire platforms to ensure and guarantee the qualifications of
their drivers and vehicles for safety purposes.
3.1.2. Regulatory conditions for vehicles
According to the Measures, a vehicle for online business op-
erations shall meet certain conditions relating to seat num-
ber limitations, equipment requirements and technical safety
standards.33 For example, it should be equipped with a ve-
hicle satellite-guided positioning device with the function of
recording of travel data and an emergency alarm device. After
examining a vehicle upon application, the relevant taxi agency
shall issue an online booking taxi transport certificate (hereinafter
license No. 2) and register it as a vehicle engaging in online
booking transport function.
3.1.3. Access limitations to drivers
According to the Measures, a driver engaging in online car hail-
ing services must also meet several conditions, such as pos-
sessing a driver’s license, having a certain amount of driving
experience,34 no criminal convictions relating to motoring of-
fences, drug-taking, drunk driving, and violent crime, and pos-
sibly other conditions as prescribed by local governments.35
After examining a driver upon application, the relevant taxi
agency at the districted-city level shall issue an online booking
taxi driver’s license (hereinafter license No. 3) to the driver.
3.2. Specified local rules with stricter regulatory schemes
The Measures, as a guidance from the central government, au-
thorize all regions, after taking consideration of the local cir-
cumstances, to both develop specific implementation rules
33
Article 12 of the Measures.
34
For example, the driver needs to have driving experience of
more than three years, see the Article 14 of Measures.
35
For details, please see X. Zhang, “A Research on Several Legal Is-
sues of Local Legislation about Booking Taxi Online”, [2016] 10 Public
Administration & Law 87.
relating to standards and operational requirements for car
hailing vehicles,36 and to impose additional requirements for
drivers.37 In those two areas of competence, local govern-
ments have imposed stricter market access conditions than
those imposed at the state level. Table 2 lists the detailed re-
quirements of 10 major cities.
Nine out of ten cities allow only cars with license plates is-
sued by the same local agency that runs the business of online
car hailing. This requirement of local plates has caused con-
troversy, especially in cities with strict number plate controls,
such as Beijing and Shanghai.38 Based on most local rules, ei-
ther local household registration or a local residence permit
for drivers literally excludes non-local participants from of-
fering online car hailing services.39 In addition, the standards
for the online car hailing are comparable with those for in-
cumbent taxi operators in terms of car price, wheelbase, gas
displacement, and car length.
3.3. Significance of a central-local dual framework on
experimental regulation
The central-local dual framework plays an important role in
China’s experimental regulation.
36
According to the Measures, the taxi agency shall determine the
specific standards and operation requirements of vehicles to en-
sure high-quality services and differentiated business operations
in accordance with the local circumstances. The standards for on-
line car hailing are comparable with those for incumbent taxi op-
erators in terms of car price, wheelbase, gas displacement and car
dimensions. The underlying expectation is to impose access barri-
ers by upgrading the quality of the business service. As a quantita-
tive measure, the requirement of local car number plates produces
a similar effect. See, X. Zhang, “A Research on Several Legal Issues of
Local Legislation about Booking Taxi Online”, [2016] 10 Public Admin-
istration & Law 87.
37
Since most local rules require either local household registra-
tion or a local residence permit, non-local participants are ex-
cluded from offering online car sharing services.
38
In Shanghai, the local agency issues the car plates via auction.
Each month the agency releases the number of licenses for the
private cars. The price of a car plate might possibly be higher than
the price of the car itself. In Beijing, the local agency issues the car
plates via drawing lots.
39
Among the ten cities, only Guangzhou allows the non-local
persons to run online car hailing businesses in Guangzhou City.
 computer law & security review 35 (2019) 145–156 149

Table 2 – Specified requirements of different local rules.

City Person Car

Driver certification Plate Price Wheelbase Displacement Length

Beijing Local household registration Local nil 2700 mm 2.0 l or 1.8 l nil
Changsha Local residence permit Local RMB 120,000 2650 mm nil nil
Guangzhou nil Local nil 2700 mm 1.95 l 4.6 m
Hangzhou Local residence permit Local RMB 120,000 2700 mm nil nil
Lanzhou Local residence permit nil 1.5 times of taxi nil nil nil
Nanjing Local residence permit Local Unclear 2700 mm nil nil
Qingdao Local residence permit Local Higher than taxi 2750 mm nil 4.8 m
Shanghai Local household registration Local nil 2700 mm nil nil
Shenzhen Local residence permit Local nil 2700 mm 1.95 l nil
Xiamen Local residence permit Local Higher than taxi 2700 mm 1.96 l nil

Firstly, the central-local dual regulatory framework does

not spontaneously mean the decentralization of regulatory
4. Costs of the current regulation and its
power from the central government to local levels. On the con-
hidden orientation
trary, the Measures were, in fact, intended to maintain central-
4.1. Question of legality
ization rather than decentralization or devolution of the cen-
tral government’s power. Neither do the Measures suggest a
China runs an integrative, but complicated system of legisla-
separation of power between central and local levels. It is still
tion. The Legislation Law of the People’s Republic of China (PRC)43
the central government that retains ultimate control over the
establishes the hierarchy of different legislative authorities.
whole regulatory process.
The Measures, as a departmental rule issued by ministries, do
Secondly, this framework directly provides an answer for
not authorize any local government to create a license, but the
regulation. The Measures effectively legalize online car hail-
latter can only specify the requirements of the license within
ing at the national level and meanwhile help local cities avoid
the material scope established by the superior – national –
pressures from local taxi operators, because it is the central
laws.44 While the Measures note that online businesses need
government who declares that the online car hailing business
three licenses (the combination of above licenses No.1, 2 and
is legal. Nevertheless, the formulation of a central rule is not
3), the only possible superior document is the Decision of the
the end of the matter. According to China’s legal experimen-
State Council on Establishment of Administrative Licensing on Items
talism throughout its economic development, the central-
Subject to Administrative Examination and Approval That Need to
local dual regulatory framework governs the regulatory
Be Reserved (hereinafter, Decision)45 formulated by the State
powers between the central government, that adopts basic
Council. The Decision governs the ratification and issuance of
principles and minimum regulatory standards, as opposed to
taxi business qualification certificates, vehicle transport busi-
the local one, that is responsible for their specific implemen-
ness certificates, and drivers’ passenger transport certificates
tation.
for the taxi industry. However, the Decision promulgated by
To this end, the involvement of local governments in the
the State Council is only applicable to the administration of
development of regulatory frameworks is critical. Most experi-
the pre-existing taxi industry and is not immediately appli-
mental regulations adopted at the local level – also called trials
cable to online car hailing without modification.46 Moreover,
– are temporary in nature40 and are implemented and revised
only the National People’s Congress (NPC) and its Standing
locally41 so to avoid the emergence of policy challenges at the
Committee have the power to specify the requirements for
national level.42
licenses since the Decision does not fall into the scope of an
administrative regulation. Unfortunately, no national laws or

40
Some cities imposed the validity of the trial document to oblige
the government to revise or re-adopt its regulation periodically.
Until 25 August 2018 these cities included Jinan City, Dongyin City,
Dezhou City and Taian City in Shandong Province, Jilin City in Jilin
Province, Liuzhou City in Guangxi Zhuang Autonomous Region,
Baotou City in Inner Mongolia Autonomous Region, Chuzhou City
in Anhui Province.
41
Several cities have even made a first revision or re-adoption.
Until 25 August 2018 these cities included Hangzhou City in Zhe-
jiang Province, Longyan City in Fujian Province, Chuzhou City and
Wuhu City in Anhui Province.
42
L. FENG, “The Predicament of the Rule of Law in the Local ‘first try’”,
in H. GE edit., Legal Method and Legal Reasoning, (Law Press, 2010),
14.
43
The Legislation Law of PRC, President Order No. 31 [2015],
adopted on July 1, 2000.
44
For example, when the laws enacted by the National People’s
Congress and its Standing Committee or the regulations formu-
lated by the State Council authorize a license item to a certain
agency, the departmental rules can help to specify and embody
the conditions of such license granting.
45
The Decision of the State Council on Establishment of Administrative
Licensing on Items Subject to Administrative Examination and Approval
That Need to Be Reserved, Order No. 412 [2004] of the State Council,
adopted July 1, 2004.
46
P. Huang, “Issues of Legality about the License Establishment in Shar-
ing Economy”, [2017] 263 Journal of Political Science and Law 60.
150 computer law & security review 35 (2019) 145–156
administrative regulations have been adopted for the online
car hailing industry so far.
As a result, most cities have imposed stricter municipal
rules for online car hailing operations. However, not all of
them have a convincing legislative basis. Taking Shanghai as
an example, one could ask should the Regulation on Taxi Ad-
ministration of Shanghai47 be treated as a superior statute to
the Rules of Shanghai on Administration of the Online Car Hailing
Industry?48 The problem here is that the Regulation on Taxi Ad-
ministration of Shanghai49 mentions nothing about online car
hailing. Neither has it been updated since the legalization of
online car hailing operations. It is unclear, therefore, whether
the local regulation of Shanghai could provide strong statutory
support for the local rules concerning online car hailing.50 If
there is no superior legislation to support the specific licens-
ing requirement, can the Rules of Shanghai on Administration of
the Online Car Hailing Industry51 create new licenses? While the
Administrative License Law of the PRC52 does allow a temporary
license to be created by a local rule – if necessary, one year
after its adoption, a new local regulation shall be formulated.
That is to say, if it is necessary to continue implementing the
license after one year, the People’s Congress and its Stand-
ing Committee of Shanghai shall propose to formulate a local
regulation. Until today, no information has been forthcoming
about the existence of such a proposal.
4.2. Question of proportionality
In the study of China’s regulations, proportionality is a com-
monly accepted standard to assess the relationship between
the aims and methods of regulations.53 Therefore, in accor-
dance with the proportionality principle, the current regula-
tions on the online car hailing industry should be evaluated
on the basis of their legitimate purpose, their appropriateness
of method, their least or less restrictive approach and their
balance between the costs and benefits.
It is debatable as to whether the current regulations can
pass the test of proportionality.54 Firstly, the legitimate pur-
pose of policy making is to secure a fair and competitive mar-
ket as well as the protection of social welfare. Nonetheless,
47
Regulation on Taxi Administration of Shanghai, Announcement No.
67 [1995] of the Standing Committee of the People’s Congress of
Shanghai Municipality, adopted on September. 1, 1995.
48
Rules of Shanghai on Administration of the Online Car Hailing Indus-
try, Order No. 48 [2016] of the Shanghai Municipal People’s Govern-
ment, adopted on Dec. 21, 2016.
49
Supra note 50.
50
Huang, supra note 49.
51
Supra note 51.
52
The Administrative License Law of PRC, President Order No.7
[2003], adopted on July 1, 2004.
53
Proportionality is also an outstanding standard of judicial re-
view in EU laws. See, N. Emilious, The Principle of Proportionality in
European Law: A Comparative Study (Oregon: Hart Publishing, 1999),
107; E. Ellis (eds.) The Principle of Proportionality in the Laws of Europe
(Hart Publishing: Oxford-Portland Oregon, 1999), 85.
54
Usually, there are four sub-tests for proportionality, includ-
ing the legitimate purpose test, the suitability test, the necessity
test, and the balancing test. See A. Barak, Proportionality: Constitu-
tional Rights and their Limitations (Cambridge: Cambridge University
Press, 2012), 529-548.
it is questionable whether the current regulations, due to the
intensive pressure from traditional taxi operators, can be said
to meet this standard. Secondly, since digital technology mit-
igates problems regarding information asymmetries, as sug-
gested by the “lemon problem” in economics,55 it might be ar-
gued that traditional government intervention could be over-
intrusive.56 Thirdly, even it is necessary to utilize the licens-
ing system, market access conditions57 and requirements im-
posing specific criteria for vehicles and drivers58 need to be
evaluated less restrictively because the necessity test requires
the least stringent method to be adopted among all possi-
ble methods with a similar effect. Fourthly, self-regulation59
might offer a better alternative to reach the same cost-benefit
result as opposed to the current licensing system that is based
on ex-ante regulation.60
4.3. Dilemma of enforcement
Strict regulation causes a dilemma of enforcement. The heavy
costs of meeting all compulsory market access conditions and
requirements can induce two possible effects: one is a drastic
reduction in the number of private cars operating in the shar-
ing economy, and the other is the illegal operation of unqual-
ified operators who do not possess the three licenses men-
tioned above. As a result, the regulation of online car hailing
in China has entered a deadlock: local governments contin-
ually introduce more stringent legislation, but almost all of
their rules have not been fully implemented. Given the char-
acteristics of online car hailing, it is easy for drivers to use
their own private cars to earn money through online-sharing
activities, and consumers can also benefit from this. In China,
90% of online car hailing drivers do not receive relevant ad-
ministrative permits.61 Most online car hailing vehicles are
operated as “black cars” or “illegal cabs.” If the government
55
The “lemon problem” was firstly illuminated by economist
George Akerlof in his well-known paper “The Market for Lemons:
Quality Uncertainty and the Market Mechanism”, which exam-
ines how the quality of goods traded in a market can decline in
the presence of information asymmetry between buyers and sell-
ers, leaving only “lemons” behind. See, G. Akerlof, “The Market for
Lemons: Quality Uncertainty and the Market Mechanism”, [1970] 84 The
Quarterly Journal of Economics 488.
56
Hou, supra note 28.
57
Wu, supra note 31.
58
Y. Chen, “The Regulatory Structure of ‘Internet Plus’: Taking the On-
line Car Booking as the Example”, [2017] 160 The Jurists Review 17.
59
Q. Gao, “Innovation in Sharing Economy and the Responsiveness of
Government Regulation”, [2017] 163 the Jurist 17; M. Cohent and A.
Sundararajan, “Self-Regulation and Innovation in the Peer-to-Peer Shar-
ing Economy”, [2016] 82 The University of Chicago Law Review Dia-
logue 116.
60
Self-regulation is highly recommended in the sharing econ-
omy, because the current sharing economy is mainly embod-
ied in the Internet platform economy which is concentrated into
the hands of a few platform giants. These platform operators of
the sharing economy are better equipped and have a stronger
motivation to implement regulation than governments do. Self-
regulation is also conducive to innovation, see M. Cohent and A.
Sundararajan, “Self-regulation and Innovation in the Peer-to-Peer Shar-
ing Economy”, [2015] 82 University of Chicago Law Review 116.
61
X. Zhang, “Regulation Innovation from the Perspective of Experimen-
tal Regulation”, [2018] 184 E-Government 32.
 computer law & security review 35 (2019) 145–156
strictly enforces the law to exclude these illegal activities, it
will not only meet resistance from online car hailing opera-
tors, but also lead to great consumer dissatisfaction.
4.4. Underlying orientation: market segmentation
The key driver behind the current regulatory framework is the
strategy of market segmentation. In this regard, the Measures
explicitly provide that the online car hailing industry shall be
developed for high-quality services and differentiated busi-
ness operations (Article 3). Though delegating the responsi-
bility of imposing conditions on vehicles to local governments
(Article 12), this principle of high-quality services and differ-
entiated business operations is emphasized again.62 To define
the online car hailing industry as high-quality services implic-
itly puts the traditional taxi industry into the low-quality cat-
egory. A segmented market has, thus, been established inten-
tionally.
Local governments have a strong preference for such mar-
ket segmentation strategy, because it can not only mitigate the
pressure from the traditional taxi industry, but it can also help
to maintain local fiscal revenues. The online car hailing busi-
ness’ classification as a high-quality service limits the possi-
bility for those under-utilized (human) resources to enter the
market. As a result, local governments’ preference for market
segmentation was further reflected in their restriction to grant
access to this market by means of the extending new condi-
tions for both cars and persons involved in the new business.
From the perspective of the central government, the strategy
of market segmentation could be treated as a compromise. If
taxi services could be divided into two parallel markets, a ten-
tative balance between the traditional and the new sharing
economy model could be achieved.
However, this market segmentation has rendered the
balance between the traditional and new economy unsus-
tainable. The prosperity of the sharing economy and its
technological innovations has maximized social welfare
with minimal transaction costs.63 It has allowed people to
participate in market transactions during their free time and
under-utilized goods to enter the market.64 Overregulation via
market segmentation will hamper the pursuit of innovation.
In addition, the government’s credibility and unification of
the legal system may end up being undermined.
4.5. New trends toward deregulation
The heavy costs of current regulatory framework, especially
the market segmentation strategy, calls for a “rectification”.65
62
It stipulates that the specific standards and operation require-
ments of vehicles shall be determined by the corresponding com-
petent administrative department of taxis according to the princi-
ple of high-quality services and differentiated business operations
and in light of the actual local circumstances.
63
Here social welfare refers to the result that the sharing econ-
omy might bring via technological innovation that increases more
under-utilized resources - material and human alike - into the
market.
64
Hou, supra note 28.
65
H. Pang, “Online Car Hailing Regulation Needs to Enter the ‘Recti-
fication’ mode”, International Financial News 2017-9-23; R. Wei, “Be
151
Since 2017, the Chinese central government, including the ju-
diciary, has released several positive signals toward deregula-
tion.
First, new entrants to the market are usually subject to
a lighter regulatory burdens than incumbents. To advance
deregulation, the Chinese government has advocated the
principle of tolerance and prudence.66 On June 27, 2017, Pre-
mier Li Keqiang proclaimed that the tolerance and prudence
principle will be adopted for new industries.67 On July 3, 2017,
the Guiding Opinions on Promoting the Sharing of Economic Devel-
opment68 explicitly declare that the regulation of the sharing
economy should adhere to such a principle. In China, the prin-
ciple of tolerance and prudence includes the following mean-
ings: (1) The governments should encourage innovation and
regulations should be friendly for innovative economy at the
macro level;69 (2) The governments should ensure the regula-
tions’ compliance with the technological characteristics of the
new economy; (3) The governments should avoid regulations
from being big obstacles or even “killers” to the development
of new economies.70
Secondly, pursuant to the Notice of Detailed Rules for the Im-
plementation of the Fair Competition Review System, China’s cen-
tral competition agency – also China’s anti-monopoly agency
– evaluated a range of issues relating to unfair competition be-
tween online and offline service providers and companies.71
At the end of 2017, the central competition agency examined
the local regulations of Quanzhou City in Fujian Province and
Lanzhou City in Gansu Province. It was concluded that the li-
censing conditions for vehicles required in both cities were
intrusive and adversely affected competition. As a result, the
relaxed market entry requirements reduced the threshold for
Wary that Policy Setbacks in Local Online Car Hailing Regulation”, China
Economic Herald 2016-9-3.
66
Literally, the principle of tolerance and prudence means more
regulatory leniency toward new industries. Before the promulga-
tion of the Measures, the central government had expressed its
supportive attitude toward the “Internet plus” model. See Z. Du,
“Li Keqiang at Prime Minister’s Press Conference: Taking Advantage and
Avoiding Disadvantages and Adopt a Tolerant and Prudent Regulation for
‘Internet +’ Industry”, [2017] 145 China Strategic Emerging Industry
11.
67
Y. Li, “Tolerance and Prudence Become the Main Keynote of Shar-
ing Economic Regulation”, People’s Posts and Telecommunications
News, 2017-08-07.
68
Guiding Opinions on Promoting the Sharing of Economic Develop-
ment, Order 1245 [2017] of the National Development and Reform
Commission, the National Network Information Office, and the
Ministry of Industry and Information Technology, adopted on July
3. 2017.
69
Guiding Opinions of the State Council on Vigorously Advancing
the “Internet Plus” Action, Order No. 40 [2015] of the State Council,
adopted on July 1st, 2015.
70
It is proposed by Chinese scholars that even for new models
that are not mature (such as online electric bicycle sharing), the
government should not ban its existence, but should minimize the
risks involved, see Z. Luo, “The Principle of Inclusive Prudential Su-
pervision in New Economic Development”, [2018] 6 Research on China
Market Supervision 66.
71
Notice of Detailed Rules for the Implementation of the Fair Competi-
tion Review System, Order No. 1849 [2017] of the National Develop-
ment and Reform Commission, adopted On October 23, 2017.
152 computer law & security review 35 (2019) 145–156
licensing (unit price of the vehicle and the wheelbase of the
vehicle) in these two cities.72
China’s central competition agency declared that the mar-
ket segmentation strategy did not meet the requirements of
fair competition law. The strategy of market segmentation is
mainly the result of the compromise between the online car
hailing industry and traditional taxi industry or the compro-
mise between innovation and the protection of traditional in-
dustries. The market segmentation strategy bestows online
car hailing its lawful status, but only in areas that do not com-
pete with the traditional taxi industry. The high standard re-
quirements for online car hailing drivers to obtain an adminis-
trative permit and vehicle have raised the price of the network
car, so that direct competition between the online car hailing
car and the taxi is avoided. This regulatory practice protects
traditional industries, but it harms consumers’ interests.
Thirdly, strict enforcement of the law will raise complaints
from both car sharing operators and their customers. Unsur-
prisingly, the enforcement of the law in most Chinese cities
lacks consistency and thus most cars are operated illegally. As
a result, courts have begun to substantively review social haz-
ards73 in response to deficient enforcement practices. Based
on Article 474 and Article 2775 of the Administrative Punishment
Law of the PRC,76 a court recently suggested that administrative
penalties should be equivalent to any social hazards caused by
the illegal behavior of a private driver. In 2017, the Guangzhou
Intermediate People’s Court imposed an administrative fine
upon online car hailing operations. It stated that:
A new type of industry that has emerged along with the advance-
ment of science and technology and the development of the mar-
ket economy, is generally accepted by the general public, and has
no social hazard, should be given a moderate understanding and
tolerance.77
72
The unit price of the vehicle engaging in online car hailing ser-
vice was adjusted from “at least RMB 150,000 (about USD 22,000)”
to “no lower than 120% of the cruising taxi price (about RMB 90,000
or USD 12,000)” in Quanzhou City, and from “price no less than
RMB 140,000 (about USD 21,000), and the wheelbase no less than
1,400 mm” to “no lower than 120% of the cruising taxi price (about
RMB 90,000 or USD 12,000), without requirements for the wheel-
base” in Lanzhou City.
73
The social hazard review is a typical Chinese court standard
which takes into account the expected negative consequences of
violations of the law and absolves responsibilities in the absence
of real costs. In the field of administrative law, the social hazard
review stems from Article 4 of the Administrative Punishment Law.
According to this article, “[c]reation and imposition of administra-
tive punishment shall be based on facts and shall be in correspon-
dence with the facts, nature and seriousness of the violations of
law and damage done to society”.
74
It stipulates that the establishment and implementation of ad-
ministrative penalties must be based on facts and be equivalent
to the facts, nature, circumstances, and social hazard of the illegal
acts.
75
It stipulates that if the illegal act is minor and promptly cor-
rected, and no harmful consequences are caused, no administra-
tive punishment shall be imposed.
76
The Administrative Punishment Law of PRC, President Order No.
63 [1996], adopted on October 1, 1996.
77
The Provincial High Court issued the 2017 Top Ten Internet Cases,
Information Times, 2018-08-07.
In other words, the court established the “social hazard re-
view” to guide local authorities in their issuing of administra-
tive punishments. This is an important judicial development
for the sharing economy.
Last but not least, according to the Measures, cruising taxis
must accept bookings through online platforms. Notably,
China’s largest online car hailing platform DiDi, provides free
online booking services to traditional taxis. In addition to
DiDi, Chinese cruising taxis have also actively set up their
own online booking platforms. For instance, a travel service
company called Dida was recently established.78 This com-
pany is committed to providing online booking platform
information services in relation to traditional taxis alone. The
company’s revenue is partly derived from local governments’
subsidies. In addition, many local governments also actively
encourage cruising taxis to achieve Uberization in order to
compete against online car hailing.79
5. The future of experimental progress of the
online car hailing regulations
The experimental model has its advantages as a constantly
adjustable regulatory mechanism. At present, with the rapid
development of online car hailing in China,80 associated crim-
inal activities attract public attention, especially after China’s
ride-sharing platform Didi suspended its carpooling service
nationwide on August 27, 2018, due to two murder cases that
occurred within three months of each other.81 This has led to
commentators criticizing the current regulatory scheme, self-
regulation and Internet platform governance.82 The survival
of the experimental model depends on the balancing of secu-
rity needs and innovation.
5.1. A shift to “Internet-based integral regulation”:
preventing market segmentation
As mentioned in part 3.4 above, one of the important aspects
of the current regulatory framework is “market segmenta-
tion”. Under this strategy, local regulatory agencies have im-
posed restrictions on access to the online car hailing market
(see Table 2) to protect the traditional taxi industry. In reality,
the traditional taxi industry will be challenged elsewhere.83
78
Q. Yang, “The Breaker: DiDa”, [2018] 542 China Entrepreneur 70.
79
X. Zhang, “Shanghai Deepens the Reform of the Taxi Industry”, Wen-
hui Daily (Shanghai), 2017-6-2.
80
From 2017 to 2018, the customers of the online car hailing in-
creased by 40.6% to 230 million, see “Statistical Report on Internet
Development in China 2018”, China Internet Network Information
Center (CNNIC) released in January 2018.
81
I. Kottasová and S. Pham, “Didi Suspends a Carpooling Service
after Passenger Murder”, [2018] https://money.cnn.com/2018/05/11/
technology/didi- murder- china- hitch.
82
P. Li, “DiDi Murder Happened again! Inaction is An Accom-
plice”, [2018] http://epaper.1news.cc/ccrb/pc/paper/c/201808/28/
c1709104.html; H. DENG, “Self-regulation Has Failed, Rectification Can
Only Rely on Government Agency”, Shenzhen Special Zone Daily,
2018-08-29.
83
According to the statistical bulletin published annually by
the Ministry of Transport of PRC (MOT), passengers of China’s
 computer law & security review 35 (2019) 145–156
On the contrary to the intended objectives, the market seg-
mentation strategy has not protected the different industries
nor promoted healthy market economics. On paper, such a
strategy should prevent potential drivers from accessing on-
line business operations.84 In reality, it has been a failure in
terms of enforcement and preventing illegal activities.85
Therefore, a regulatory shift is warranted from market seg-
mentation to fair competition. Without sufficient and fair
competition, the service quality of both traditional taxis and
the online car hailing industry would decline significantly.86 In
order to achieve such a shift, an integrated regulation process
should be carefully planned through an experimental regula-
tory approach. Firstly, the preliminary stage of the regulation
could be defined as a “taxi-based regulatory model” because of
the way in which it incorporates online car hailing into the tra-
ditional taxi regulation system. Secondly, in a following step,
a “separated regulatory model” could treat the two industries
as parallel to each other in terms of their respective regula-
tory aims and methods. When recognizing online car hailing
as an independent industry, the regulatory requirements for
online car hailing operations could not be stricter than those
for the traditional taxis. It should avoid using the old regula-
tory model to directly regulate the new economy.87 At the final
stage, it is expected that an “internet-based integral regulatory
model” would integrate the online features into the general
transportation regulation, thereby meeting both the “Internet
plus” revolution and the maximization of social welfare. Based
on this model, the regulation of online car hailing and the re-
form of taxi regulation should be harmonized. In most cities,
the taxi industry has strict market access conditions.
The fact that Uber and Lyft can use mobile Internet tech-
nologies to connect passengers and drivers reveals that the
current cumbersome mode of regulation for traditional taxis
traditional taxi has been declining with 2.3% from 2014 to 2015,
3.1% decline from 2015 to 2016 and 3.2% decline from 2016 to 2017.
The decline of the traditional taxi industry is consistent with the
rhythm of the rise of the online car hailing. See, China’s Ministry
of Transport information disclosure column http://www.mot.gov.
cn/fenxigongbao/hangyegongbao/.
84
Zhang, supra note 39.
85
H. de Soto, “The Mystery of Capital: Why Capitalism Triumphs in
the West and Fails Everywhere Else” (Chinese edition), trans. by H. Yu
(Huaxia Publishing House 2017), 129.
86
N. Li and R. Wang, “Reporter’s Pro Test: Difficult to Take a Taxi in Late
Night after DiDi Suspended”, Modern Express, 2018-9-12. Moreover,
according to statistics generated by some scholars, in Beijing, local
authorities’ requirement for drivers to hold local permanent resi-
dence not only increased the waiting time for getting the license,
but also resulted in an estimated annual loss of RMB 2.6 billion
(USD 380 million). X. Song and X. Zhang, “The Cost Benefit Analy-
sis in Local Government Regulation on the Car-hailing: Illustrated by the
Case of Beijing”, [2017] 5 Journal of Chinese Academy of Governance
123.
87
H. A. Posen “Ridesharing in the Sharing Economy: Should Regula-
tors Impose Uber Regulations on Uber”, [2015] 101 Iowa L. Rev., 405;
B. G. Edelman and D. Geradin, “Efficiencies and Regulatory Shortcuts:
How Should We Regulate Companies like Airbnb and Uber”, [2015] 19
Stan. Tech. L. Rev., 293. The practice of the transportation network
company (TNC) created by the Californian regulator might pro-
vide a good example of this mode. See J. Cramer and A. B. Krueger,
“Disruptive Change in the Taxi Business: The Case of Uber”, [2016] 106
American Economic Review, 177.
153
is outdated.88 For example, although the online car hailing in-
dustry uses mobile devices to calculate fees, regulators still
require the taxi industry to install payment meters. Such reg-
ulatory gaps impose unnecessary costs on the taxi industry. It
is important to liberalize the traditional taxi industry to stim-
ulate sufficient and fair competition. The use of Internet tech-
nology by the traditional taxi industry could assist in deter-
mining prices and facilitating payments. Governments should
also take responsibility for financially supporting the taxi in-
dustry’s embracement of Internet platforms. Fair competition
does not always require the same set of regulatory obligations
to be applicable between old and new business models, but
sometimes can be brought about by different ones under spe-
cific conditions. As Wyman puts it: “different standards might
be applied to traditional and e-hailed taxis, but only if differ-
ential standards are justified based on the benefits exceeding
the costs”.89
5.2. The key approach: adjusting the current central-local
regulatory system
Historically, local governments have been responsible for the
regulation of the traditional taxi industry. Since 2014, however,
the central government stepped in. The Ministry of Transport
issued the Provision on Administration of Taxi Business Operations
and Services90 which declared that the Ministry of Transport
is responsible for guiding the management of taxis through-
out the country so as to strengthen the national regulation of
the taxi industry. This governance model coincides with the
trend of urbanization which had attracted the attention of na-
tional authorities who expanded their regulatory prerogatives
in major urban centers such as Beijing and Shanghai.
The current market segmentation strategy is also rooted in
the central-local dual governance system. Local governments
try their best to persuade the central government to protect
the traditional taxi industry, because the taxi industry pro-
vides many local fiscal benefits, as well as benefits relating to
safety and social welfare. Conversely, online car hailing does
not generate local fiscal revenues, and instead causes traffic
jams and social unrest with the influx of non-local drivers. The
real purpose of market segmentation is to legally empower lo-
cal governments to raise access conditions for online car hail-
ing. However, this policy only offers short-term local benefits
and may disadvantage the development of the sharing econ-
omy in the long-term. In order to eliminate market segmenta-
tion it is necessary to adjust the central-local dual governance
system. Both the central government and local governments
should make full use of their capabilities to maintain fair com-
petition and consumer protection.
5.2.1. Central authorities
The most important task for the central government is to
promote a unified and fair market environment. The central
88
Cramer and Krueger, supra note 91.
89
K. M. Wyman, “Taxi Regulation in the Age of Uber”, [2017] 20 NYU
Journal of Legislation and Public Policy, 1.
90
The Provision on Administration of Taxi Business Operations and Ser-
vices, Order No. 16 [2014] of Ministry of Transport, adopted on Jan.
1, 2015.
154 computer law & security review 35 (2019) 145–156
government is immune to political influence from local inter-
est groups. Since the online car hailing industry itself is na-
tional or even global, the central government should adopt a
unified approach to regulating the online car hailing industry.
The central government should give due consideration to
the financial system, on the one hand, and the fiscal rev-
enue system, on the other. These two areas fall within the
scope of national responsibilities and are important for the
development of both the online car hailing and traditional taxi
industries. Both online car hailing and traditional taxi opera-
tions in China accept several modes of payment and settle-
ment. Limitations, however, on traditional taxi operations are
still in effect. The compulsory meter device and the payment
calculation system are outdated. Although local governments
are better positioned to handle specific local situations, the
financial system can only be regulated at the central level.
The central government now needs to develop a financial sys-
tem to achieve multiple purposes, including consumer pro-
tection, passenger safety, technological innovation and fair
competition.
Both central and local governments are equally concerned
with fiscal revenues. Unfortunately, however, the current fis-
cal revenue system is unfriendly to local governments. Didi for
example, since registering in the Free Trade Zone of Tianjin
City, all of its business receipts have only been taxed in this
locale. Even if the firm’s cars offer services in other cities, the
profits are still taxed in Tianjin. To provide fiscal relief to other
cities, the central government should adapt the fiscal revenue
system for the sharing economy. Since the platform economy
falls into the category of an internet economy,91 its business
should not be subject to territorial restrictions.92
The central government demonstrating a commitment to
innovate the fiscal revenue system would influence the will-
ingness of local governments to support the sharing economy.
The evaluation of digital data – processed on the basis of the
digital payments for online car hailing services – cannot only
assist in determining the geographical base of business op-
erations, but in redesigning the calculation and allocation of
fiscal revenues. A unified national regulatory data platform
should be designed and constructed. Only the central govern-
ment has the power to gather such data across regions and
government departments.
5.2.2. Local affairs
While the central government’s role has been enhanced in
the regulation of the sharing economy, the role of local gov-
ernments could be under-estimated. Serious crimes93 in the
past year have reminded us that governance based on big data
91
M. Kenney and J. Zysman, “The Rise of the Platform Economy”,
[2016] 32 Issues in Science and Technology 61.
92
The sharing economy has long existed, but today the sharing
economy has become the focus of the world’s attention, mainly
because of the great development of Internet technology and the
internet platform. Therefore, the sharing economy discussed in
this paper mainly refers to business activities pursued on the In-
ternet platform, see H. Juho, M. Sjöklint and A. Ukkonen, “The Shar-
ing Economy: Why People Participate in Collaborative Consumption”,
[2016] 67 Journal of the Association for Information Science and
Technology 2047.
93
Supra note 86.
is limited. For example, when criminal activities are about to
happen in the car, it is impossible to rely on the Internet to
stop them. Alleviating the safety concerns of online car hail-
ing still requires the local government to invest enough police
force to deal with each safety incident on time. Local govern-
ments are more aware of local conditions and are ideally po-
sitioned to respond quickly to daily safety incidents. The role
of the local government in ensuring the safety of the network
is irreplaceable.
There are many factors that influence local governments
to play a greater role. Firstly, the information sharing mecha-
nism between the online car hailing platform enterprise and
the local government has not been effectively established. The
online car hailing platform enterprise faces a large number of
different local government law enforcement information re-
quests and local governments complain that the online car
hailing platform enterprise fails to provide relevant informa-
tion in a timely manner. Secondly, facing the new risks of on-
line car hailing, the local governments do not have enough
budget to increase their law enforcement power. The fact
that the online car hailing platform giants are national en-
terprises means that it is difficult for most local governments
to obtain tax revenue from the network car platform compa-
nies.94 Finally, the local government’s support for the online
car hailing industry can adversely impact the local taxi in-
dustry which requires local governments to spend more bud-
get to alleviate the socio-economic problems resulting from
unemployment.
We suggest that the solution to this problem is to
strengthen cooperation with local governments and solve
problems through close cooperation between enterprises and
the government. Operators of online car hailing platforms
must invest more in the construction of their information
sharing platform and in local law enforcement capacity. The
central government should play an active coordinating role.
5.2.3. The third party: platform companies
In addition to central and local authorities, the platform
companies themselves might be treated as a third party in
the achievement of “Internet-based integral regulation”. With
the rise of the platform economy, platform operators should
bear more responsibilities for governing their respective plat-
forms.95 Such platform governance is also treated as a typical
feature of the online economy.96 Because daily business ac-
tivities are offered through Internet platforms, the platforms
94
Internet platform operators generally pay taxes only at their
place of registration usually in big cities or tax havens.
95
K. J. Boudreau and A. Hagiu, “Platform rules: Multi-sided Platforms
as Regulators”, [2009] 1 Platforms, Markets and Innovation 163; K.
Claffy and D. Clark, “Platform Models for Sustainable Internet Reg-
ulation”, [2014] 4 Journal of Information Policy 463; M. Cohen and
A. Sundararajan, “Self-regulation and Innovation in the Peer-to-Peer
Sharing Economy”, [2015] 82 U. Chi. L. Rev. Dialogue 116.
96
Platform governance is a new governance model in a two-sided
market or multi-sided market. In the two-sided market, the seller
and the buyer constitute the supply side and the demand side of
the market respectively and the platform operators provide in-
termediary services and gains. In order to contain negative exter-
nalities and improve transaction efficiency, platform governance
will use private law rights to bind buyers and sellers. This process
is called platform governance. Platform governance could also be
 computer law & security review 35 (2019) 145–156
themselves have first-hand information and, therefore, are
capable of managing individual car drivers better than gov-
ernments. In addition, platform operators have the financial
means to self-regulate their operations. Indeed, the Measures
require platforms to review the qualifications of drivers and
their cars for safety control.
Self-regulation, however, does not preclude government
intervention.97 In this respect, the two recent murders by
online car hailing drivers in China suggests that platform
governance will fail without the strong support of the gov-
ernment. Nonetheless, Didi’s prior compulsory information
registration system, including name and facial recognition
of drivers, has not prevented the manifestation of crimes.
There are two reasons for this. First, platform operators lack
sufficient capacity to conduct unified platform governance.
For example, they do not have enough information when
conducting background checks on drivers, including criminal
or traffic violation records. Moreover, platforms cannot them-
selves stop crimes occurring without the timely assistance of
the police. Secondly, platform operators also lack sufficient in-
centives to impose strict internal regulations. If the procedure
to check drivers’ backgrounds is too strict, drivers may move
to other platforms which apply less rigorous regulations.
5.3. Some feasible institutions
It is certainly not easy for this proposal to be adopted. The pro-
cess for its adoption would inevitably require the re-allocation
of power among different levels of government, the devolution
of local market intervention to an integrated market mecha-
nism, and the reinvention of the traditional taxi industry. Dur-
ing this process, several supervisory and adjudicative mecha-
nisms could be established for the sustainable development
of the Internet-driven online car hailing industry.
5.3.1. Internal supervision: competition review from an inde-
pendent agency
The central competition agency’s supervision is a typical ex-
ample of internal and neutral competition review.98 It has
played an active role in promoting the experimental progress
for online car hailing regulations, especially in situations
where local regulations and traditional taxi monopolies con-
stituted a threat to fair competition between online and offline
counterparts. To ensure fair competition and restructuring of
considered as a private self-regulation. See S. Evans, Governing Bad
Behavior by Users of Multi-sided Platforms, [2012] 7 Berkeley Technol-
ogy Law Journal 1201; C. Rochet and J. Tirole, “Platform Competition
in Two-sided Markets”, [2003] 4 Journal of the European Economic
Association 990.
97
R. Baldwin, M. Cave and M. Lodge, The Oxford Handbook of Reg-
ulation (Chinese version), trans., by H. Song, H. Li, Y. An and C. Lu
(Shanghai SDX Joint Publishing Company 2017), 690.
98
Previously, fair competition regulation had been scattered by
National Development and Reform Commission, State Adminis-
tration of Industry and Commerce, and the department of com-
merce. Under the plan “on deepening reform of Party and State Insti-
tutions,” after March 2018, the fair competition regulation authority
has been concentrated to the State Administration for Market Reg-
ulation, which is also a ministerial department of the State Council
(Central Government).
155
the transportation industry in the Internet era, the central
competition agency should acknowledge the problems arising
from the new monopoly of large platform companies, as well
as the existing monopoly of the traditional taxi industry.99
The taxi regulations themselves have reinforced the domi-
nant position of the traditional taxi industry in the transporta-
tion market. In this regard, in most cities, a taxi license is very
expensive because of strict quantity control and access re-
quirements. The market price for a taxi license on the second-
hand market can be dozens of times more than the original
license fees paid to local governments. This is a regulatory ob-
stacle which governments must tackle in order to encourage
fair competition between online and traditional taxis.100 Con-
versely, traditional taxi companies or drivers would certainly
ask for compensation from the governments were their “reg-
ulatory monopoly” to come under threat. The technological
revolution of online car hailing disrupts the current licensing
system and ruins the “regulatory monopoly” of the traditional
taxis. Even if they were compelled to acquire licenses (as has
been the case for Didi), their high price has been a considerable
obstacle for platform companies.
5.3.2. External supervision: individual appeal and judiciary
function
Individual appeals and judicial decisions have played an im-
portant role in China. The wisdom of judges gives strong guid-
ance for understanding the innovative character of online car
hailing. Compared with administrative regulations, judicial
governance has its unique advantages. In the realm of the new
sharing economy, judges might prefer the principle of prefer-
ring “bottom up self-regulation rather than top-down govern-
ment control”,101 of equal treatment or proportional punish-
ment. Besides, judges establish precedents on a case-by-case
basis. With the rapid development of the new sharing econ-
omy, this casuistic approach can keep the robust application
of the regulation abreast of the latest changes in the trans-
portation industry.
The Chinese judiciary has helped govern the online car
hailing industry in two fundamental ways. Firstly, it has high-
lighted the standard of the “social hazard review”. Article 4.2 of
the Administrative Punishment law of PRC102 firmly establishes
the principle of proportionality in respect of illegal behaviors
and the punishment thereof. Secondly, it has rejected selec-
tive enforcement.103 In the Case of Caoxiong QU,104 the court
99
Notice of Detailed Rules for the Implementation of the Fair Compe-
tition Review System, No. 1849 [2017] of the National Development
and Reform Commission, adopted On Oct. 23, 2017.
100
After the boost of the online car hailing business, the price
of cruising taxi license has depreciated sharply. Some research
points out that average fallen rate reaches 50%. See, C. Jiang, “Half
Devaluation of Licenses: Difficulties of Cruising Taxi Industry”, China
Enterprise News, 2015-5-26.
101
D. Allen, “The Sharing Economy”, [2015] 67 Institute of Public Af-
fairs Review: A Quarterly Review of Politics and Public Affairs 24.
See also Administrative License Law of PRC.
102
Supra note 79.
103
“Selective Implementation of Law constitutes Immunity from
legal liability”, [2018] https://club.autohome.com.cn/bbs/thread/
af60fc60f433d4ba/75577154-1.html.
104
Caoxiong QU v. Transport Commission of Guangzhou City,
Guangdong Province (2017.10.12).
156 computer law & security review 35 (2019) 145–156

of first instance observed that only a limited number of online

car operators (operators in the platform) were punished for
6. Conclusion
illegal acts, while platform companies (operators of the plat-
Though the Internet economy has become part of our daily
form) should be liable too.105 Consequently, the court of ap-
lives, complaints over associated regulatory regimes have in-
peal held that the selective punishment of the plaintiffs is not
creasingly intensified. As the biggest sharing economy in the
compatible with the principle of equality.
world, lessons from China’s experimental regulation of the
In addition, the establishment of a tribunal for the Internet
online car hailing industry will be valuable elsewhere. Under
economy might ensure the professional character of dispute
the philosophy of legal experimentalism, China’s central-local
resolution. In this regard, China established three Netcourts, in
dual regulatory model managed to govern the dynamic online
Hangzhou, Beijing and Guangzhou in 2018.106 Even though the
car hailing industry to protect this booming economic activity.
Netcourts do not have jurisdiction over cases of online car hail-
Local governments enjoy regulatory flexibility in specifying re-
ing,107 this could be changed to guarantee a professional judg-
quirements relating to market access, thereby reflecting the
ment giving full weight to the different values at stake in the
Chinese governance wisdom of “crossing the river by touch-
new sharing economy.
ing the stones.”
China’s choice of adopting market segmentation strategy,
however, should be avoided. This implies China broader im-
5.3.3. Procedural control: expanded participation in the policy
portance to similar regulatory attitudes to the online car hail-
making process
ing industry in other jurisdictions where regulators have been
Given the fragmentation of competencies across different
rather dismissive towards the new industries and have been
regulatory agencies – national and local alike, the current
killing innovation as a result. Instead, the ultimate direction
regulation of online car hailing in China suffers from various
of regulating the online car hailing industry should be to pur-
structural imbalances. While online car hailing operates
sue an “Internet-based integral regulation” which recognizes
nationwide, the Chinese regulatory systems are still local
and reforms traditional taxi regulations at the same time.
and fragmented. Moreover, local regulators do not always
Moreover, better regulation will require coordination between
act impartially and in the public interest, they have their
central and local governments, and the participation of plat-
own interests and intentions vis-à-vis the online car hailing
form companies themselves. Internal and external supervi-
industry given their long-standing relationship with the local
sion through competition agencies and the judiciary could
traditional taxi industry.108
consolidate the development of an integrated transportation
One solution is to get interested parties involved in the pol-
market – online and offline alike. Therefore, it is vital to reform
icy making process in order to avoid administrative protec-
the current system of regulation, to lower unnecessary mar-
tion for the traditional taxi industry at the expense of the new
ket access barriers and to maintain an open (self-)regulatory
sharing economy. While the local governments often intend
system.
to suppress new online car hailing operations, consumers
strongly support the new style of transportation.109 The rep-
resentation of different interested parties would not only im-
Acknowledgment
prove the neutrality and impartiality of the relevant regulatory
agencies,110 but also strike a balance between the fragmented
The authors acknowledge the financial support by the grant
reality and an integrated approach to the regulation of the new
of the National Social Science Foundation of China (No.
sharing economy.
17BFX038). The authors are also sincerely grateful for the re-
viewer’s comments.

105
“Operators in the platform” are different from “operators of
the platform”. The operators in the platform refer to enterprises
and individuals that use the Internet platform to provide goods
and services, while the operators of platform refer to intermedi-
ary service providers who obtain revenue through the construc-
tion and maintenance of platforms. These two concepts are im-
portant innovations in China’s e-commerce law, see Article 9 of
The E-Commerce Law of the People’s Republic of China, President Order
No. 7 [2018], adopted on January 1, 2019.
106
Y. Lin, “Create a New Start of Rule of Law in the Internet Age”, Peo-
ple’s Court Daily, 2018-09-29.
107
Provisions of the Supreme People’s Court on Several Issues in the Trial
of NetCourt Cases, published on the People’s Court Daily, 2018-09-08.
108
E. D. BóDal, “Regulatory Capture: A Review”, [2006] 22 Oxford Re-
view of Economic Policy 203.
109
H. Cui, S. Li and W. Wang, “Study on the Impact of the Online Car
Hailing Demand on the Travel of Urban Residents: Taking Beijing as an
Example”, [2017] 189 Urban Development Studies 1.
110
R. B. Stewart, “The Reformation of American Administrative Law”,
[1975] 8 Harvard Law Review 1667.