By Feng Jie, Zhang Junkuo & Gao Shiji, Development Research Center of the State Council

Research Report No. 126, 2008

Overall, China's taxi industry is currently developing in the right direction. Some prominent contradictions and problems have been solved in different degrees, the factors causing industrial instability are gradually reducing, and various regions have formed good experience and practices in promoting a healthy development of the taxi industry. However, due to the impact and restraint of various factors, some cities are still obsessed by relevant problems, such as the difficulty to get a taxi, the poor service quality, the substandard operational management, the rampant illegal operations, the problematic relations between drivers and enterprises, and the excess burden of the drivers. These problems have been there for a long time. As to how to solve these problems, the theoretical circle, the management departments, the operating companies, the drivers and the consumers all have put forward their opinions and suggestions from different angles and through different channels. In order to thoroughly define the nature of the taxi industry, standardize the taxi management and promote the healthy development of the taxi industry, the Development Research Center of the State Council formed a special research project team to examine the taxi development and management in the cities of Beijing, Wenzhou, Wuhan, Shenyang, Taiyuan, Chongqing, Guangzhou, Shenzhen and Zhengzhou. On the basis of the judgment by project members on the overall state of China's taxi industry, it is believed that industrial definition, regulatory methods, transfer of operational right, operational models, illegal taxis, illegal taxi operations, and relations between enterprises and drivers are the core issues concerning the current management and development of China's tax industry. If China is to clearly define the direction of the management and development of the taxi industry and promote a sustained, steady and healthy development of the industry, we must correctly understand and handle these problems.

In developing the taxi industry, China must take into account the maximization of social welfare and strike a balance in the interest pursuit between all the stakeholders, including the consumers, the operators, the investors and the government regulatory departments. At the same time, China should consider the nature of the taxi operational right, the transfer of these rights, the models of industrial operation and the models of government regulation, from the perspectives of long-term industrial development and long-term social interests. These problems cannot be solved merely by defining taxi ownership relations. Economic analyses of the possible operational models of the taxi industry can throw some light on how to solve the problems facing the taxi industry. But foreign experience in developing the taxi industry indicates that more importantly we must study the issues concerning the development and management of the taxi industry according to the features of China's economic and social development at present stage, the system environment and the quality of the labor.

I. Definition of Taxi Industry: Supplement to Large-Capacity Public Transportation

The definition of the taxi industry constitutes the basis for choosing systems and policies for industrial management. In light of the unique features of the taxi industry and China's current national conditions, taxis should be defined as a supplement to the large-capacity public transportation system in meeting the transportation demand of the residents. This definition has two implications. The first implication emphasizes that taxis are uneconomical. Taxis are a means of transportation that stays between the large-capacity transportation systems (such as buses, subways and light rails) and the private means of transportation. In relation to the private means of transportation, the use of taxies is of no exclusive nature. They constitute a means of public transportation and belong to the scope of public transportation. But to the large-capacity transportation systems, taxis involve fairly high use costs and cause fairly greater pressure on resources and environment. As they mainly operate in the urban areas and use a large proportion of urban road resources, they are a convenient but uneconomical means of public transportation. As China accelerates industrialization and urbanization, the problems such as overpopulation, land and road resource scarcity and urban traffic congestions have aggravated. The under-capacity of cities will be a long-standing contradiction. Therefore, developing large-capacity public transportation systems as a priority should be a long-term strategy and accordingly proper restrictions should be imposed on the development of taxis. It is out of this consideration that we believe it improper to simply define taxis as a component of public transportation. Otherwise, such a definition cannot distinguish priorities and can lead to a misunderstanding that taxis should also enjoy government subsidy as the large-capacity public transportation systems do. The second implication emphasizes that taxis are unsubstitutable. On the one hand, before the large-capacity public transportation systems are constructed and improved, taxis in many cities and especially small cities are an important means of transportation and play an important role in meeting the transportation demand of the residents. On the other, even when the large-capacity public transportation systems are well developed, taxis are still a means of public transportation required to meet the special transportation demand of the residents, such as transportation to airports, hospitals and unfamiliar places. Meanwhile, as the large-capacity public transportation systems have limitations in service networks and operating hours, this also provide a space for the existence of taxis. Therefore, while taxis should not be taken as the main means of public transportation, they are unsubstitutable and can serve as a supplement to the large-capacity public transportation systems. For this reason, taxis should be incorporated into the integrated transportation systems and especially those in the urban areas, for overall consideration and proper development.

II. Regulatory Method for Taxi Industry: Government-Franchised Operation

Regulating the taxi industry through government-franchised operation means the government should not only regulate the fare and quantity of taxis, but also exercise necessary and special regulation over the behaviors of taxi operators. As to what kind of regulatory method the government should employ for the taxi industry, different countries have different experience, different practices and different theoretical views. Both general franchised and special franchised operations are adopted by cities. Many cities even experienced a tortuous process: special franchise -- general franchise -- special franchise. And all methods have their own defects. But in general, most cities both in and outside China employ special franchise. The selection of regulatory method depends not only on the general nature of the taxi industry but also on the environment for the development of this industry.

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