Sunday, 4 June 2017

HONG KONG: Sorry Uber, There Is No More Hope In Hong Kong

Embattled car-hailing firm Uber is seeking talks with Hong Kong’s incoming leader in the hope of securing a formal regulatory framework for its operations.

Car-hailing giant is up against a speculative lobby that has close links to government and that stands to lose HK$120b from any reform of the city’s taxi business.

Don’t bother, Uber. This is one you cannot win. You are up against a speculative lobby that has close links to government and that stands to lose HK$120 billion (US$15.4 billion) from any reform of the city’s taxi business.

It’s too bad, really, because with one single reform we could make Hong Kong taxis a model for the world with lower fares, better paid and happier drivers, better cars and all the latest in ride hailing apps, in short everything we want from our taxis.

This reform is to abolish a ceiling, in place for more than 20 years, of a maximum just over 18,000 taxi licences and make these licences available in future to every car that meets the operating standards we impose for taxis and every driver who qualifies to drive one.

We can even raise these standards if we wish. In fact it might be a good idea. But the key reform will be that if you want a taxi licence for your car you will be entitled to one for a nominal fee if your car meets the required standards.

The number of taxis on the road will no longer be limited by administrative fiat.

That’s it. That’s all we need to do. And it will never happen.

The reason is that by controlling both the number of taxi licences and the fares that taxis can charge, our government has created a distortion in the taxi market.

At present fare levels, taxi drivers would be able to take home about HK$25,000 a month, which is much more than the present standard wage level for a semi-skilled worker and would ordinarily attract a flood of workers to the trade.

Taxi licence owners take the view that the right to receive two payments a day of up to HK$440 for the use of a taxi is at present worth HK$7 million.

That’s the price level at which these licences now trade.

But few drivers these days own their own taxis. They cannot afford them. The car itself costs only about HK$250,000 but the licence to use one as a taxi can only be had by buying one from someone else at a present market cost of about HK$7 million.

Because each and every hired driver must pay up to HK$440 per 10-hour shift to the owner of the taxi he drives. That HK$7 million is the capitalised value of the income stream at the present low yield rate of HK dollar financial assets.

Put another way, taxi licence owners take the view that the right to receive two payments a day of up to HK$440 for the use of a taxi is at present worth HK$7 million. That’s the price level at which these licences now trade.

And 18,000 licences at HK$7 million apiece gives you a combined value of HK$126 billion. But we’ll round it down to HK$120 billion.

Meantime the taxi driver is back to earning the standard semi-skilled wage in the region of HK$10,000 a month while you are charged almost double what you really need to pay for a taxi ride and Uber has no chance of breaking into the taxi market without having its drivers regularly arrested.

Not only are the taxi owners generally patriots who would have the ear of Beijing if their speculative investment were ever threatened but, with the skewed voting arrangements common to functional constituency seats in the Legislative Council, they have absolute control of the key Transport seat.

The scandal is that they do nothing for their HK$7 million per licence. It is pure speculation, the result of a government induced anomaly in the market.

And we could get rid of it tomorrow by abolishing limits to the number of taxi licences.

All the reforms we want would quickly follow. Even Uber might then find itself falling behind the trends in ride hailing.

But it would mean wiping out HK$120 billion of speculative assets that contribute nothing to our economy and our government will never allow this.

It is simply too connected to the speculators. That’s the failing of our form of government.

So Uber, simply forget, you have no hope.