Good supervision can end taxi woes

Another contentious issue is the "franchise fees", which most Chinese cabbies have to pay to their companies. But more than a business anomaly, it is an antiquated practice.

To streamline the sector, transport authorities have to encourage large-scale and corporatized taxi management without prohibiting individuals from providing taxi services.

Before the franchise fees was introduced in the 1980s when most of the taxi companies were owned by the State, cab drivers were paid low, regular wages and therefore often refused to pick up passengers and used the vehicles for personal purposes. The franchise fees system was introduced to motivate the cabbies to work to their potential and reduce corruption. Under the system, drivers have to pay part of their overall earnings - the franchise fees, including administrative fees and taxes - to the taxi company, and take home the rest.

But this system no longer helps cabbies earn enough going by wages in other sectors. The labor law says cabbies are entitled to sign contracts with taxi companies on the basis of detailed franchise costs and minimum wages, and claim payment according to "merit". Which means the root cause of cabbies' problem lies in the outdated management. Taxis by appointment, which many high-end passengers favor, are not available in some small cities and account for only a small percentage of the entire taxi business in big ones.

It is the information asymmetry between taxi operators and the public has resulted in an increasing number of passengers complaining about the difficulty in getting a cab. To solve the problem, local transport bureaus need to recruit qualified operators and hold public biddings based on service quality and Internet technologies. Besides, the country needs foolproof legislation on taxi and car rental business to plug the loopholes in the few existing regulations to encourage healthy competition in the industry.

The author is a professor of law at the Management College of the Ministry of Transport of China.