Getting a cab on the street may soon be just a memory. That's the promise of a new wave of mobile apps, reports He Wei in Shanghai

Getting a taxi in Shanghai's central business district is a matter of luck for Chen Zhuo, especially during rush hour. But now, an "invisible hand" is helping her - an account on Kuaidi Dache (loosely translated as Fast Taxi, Catch a Cab), an on-demand taxi-hailing app.

Chen's order for a taxi is quickly sent to hundreds of available cabs in the area. Instead of shivering in the wind, she can wait inside where it's warm and receive a call from a nearby driver who is scheduled to pick her up in less than five minutes.

Both passengers and taxi drivers already have an incentive to use Kuaidi to save time and money for both sides. Now there's a more explicit lure: cash rebates.

Alibaba Group Holding Ltd has just invested 500 million yuan ($82.4 million) in the app's developer, Hangzhou-based Kuaizhi Technology Co Ltd.

Drivers get 15 yuan per ride by using the app, while customers get 10 yuan for using Alipay Wallet for the fare.

As Alibaba's third-party payment platform, Alipay is eager to duplicate its dominance of personal computers on the mobile front. The alignment with Kuaidi is a gateway to get China's smartphone users hooked on online-to-offline payments, said Mo Daiqing, an analyst at the China E-commerce Research Center.

"Whoever invests in such applications will gain easy access to the huge number of users and get them into paying for anything with a phone," said Mo. "It has strategic importance for companies pushing ahead with mobile commerce."

Hot competition

Alibaba is banking on Alipay Wallet's role in app transactions to make it the center of Chinese people's financial lives, from holding their savings to buying a can of soda.

That explains the rationale for both Alibaba and its rival Tencent Holdings Ltd, which is heavily subsidizing a rival app.

With an easy name to remember, Didi Dache (Honk, Honk, Catch a Cab) has rolled out similar offerings to lure users, most of whom are using Tencent's popular mobile chat app WeChat.

Refunds are given to users' Tenpay account, the equivalent of Alipay in Tencent's empire.

Kuaidi and Didi have taken the lead in China's nascent yet fast-growing taxi-hailing sector, with a combined 80 percent market share, IT consultancy iResearch estimated in November.

Kuaidi announced unexpectedly on Monday that it will halve subsidies on the customer end to 5 yuan per ride for up to three rides per day.

It's unrealistic to expect permanent subsidies, but the whole idea of a rebate is to nurture the market and brand awareness, said Zhang Jing, operating vice-president of Didi.

"More than 40 million rides were booked via the app in the first month of the promotion, with 68 percent of payments completed via Tenpay. To that end, we have achieved our goal," he noted.

Kuaidi, for its part, is stressing "sustainable commitments" to customers, according to a statement from Alibaba.

Company statistics suggest that daily orders peaked at 1.28 million, while 600,000 transactions were carried out daily through Alipay Wallet.

China's hailing apps have some unique features that distinguish them from those overseas.

For one thing, there's the business model. Profitability isn't the top priority for domestic companies, at least for now, while app developers in the West charge a commission for connecting drivers and passengers.

For instance, San Francisco-based car-hailing operator Uber charges a base fee as well as rates based on time and distance. Those rates vary from city to city.

Another feature of the Chinese apps is that passengers can add "tips" to entice drivers.

Regulators' dilemma

"Premium passengers" are enticing some international app players, such as Uber, to tap into the Chinese market. According to Allen Penn, the company's chief executive officer in the Asia-Pacific region, Uber is targeting the high-net-worth population, which values time and is willing to pay more for a better experience.

The digital-hailing craze swept the nation so hard that local regulators have come up with plans to both support it and end it.

In China's most populous hub, Shanghai, authorities may replace physical hailing with "a troika" of choices: telephone bookings, mobile apps and taxi stands, said Sun Jianping, head of the Shanghai Urban Transportation Bureau.

"The act of physically hailing a cab in the street may become a rarity within five years," said Sun, whose agency centralizes the registration of hailing apps and connects them with licensed taxi providers.

Reserving a taxi makes the best use of public resources and is becoming a necessity in places such as Shanghai, where the number of taxis isn't keeping up with demand.

"It makes sense to see how that pans out," he said.

Drivers are among the biggest beneficiaries of the incentives offered by apps. Liu Shijun, a driver with more than 10 years of experience at Shanghai-based Haibo Co Ltd, said he's been able to make more money with the app.

"Normally, I'm an amateur with technology, but it's so user-friendly that I was able to show many customers how to use it," said Liu.

He said the first thing he does each day is to start up the booking apps.

Passengers divided

Wu Xing, a 30-year-old translator in Hangzhou, Zhejiang province, said she'll keep using the apps even if the subsidies end.

"I don't care if I get subsidies, so long as it helps me get a cab," said Wu, a loyal user of Kuaidi.

But others worry about the equity of it all.

"The practice may boost efficiency, but it ignores the idea of fairness in the processes that allocate resources," said Yu Hai, a sociologist at Fudan University in Shanghai.

Yu said the apps will put the interests of some people, notably the less educated and senior citizens, at "severe risk".

Under the Chinese model, where people may add tips to hire cabs, the hailing app has posed a "security dilemma", forcing people to rely on them at the expense of others.

"Who will protect those who shiver in the chilly wind and fail to get a cab for an hour in the middle of nowhere?" he asked.

But despite these concerns and disruptions, sticking out your arm to hail a cab is set to end, said Zhu Hailiang, a seasoned driver of the Uber fleet in Shanghai.

"In the future, throwing up your arm and yelling 'taxi' may be something seen in the movies. The best allocation of resources: Isn't that the spirit of a market economy?" he said.

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Taxi drivers register a car-hailing app at a developer's office in Shanghai. Taxi apps have become popular in major cities such as Beijing and Shanghai, where the number of taxis isn't keeping up with demand. Liu Xingzhe / for China Daily