A China Auto Rental outlet in Beijing. The car rental markets has soared in recent months thanks to increasing demand following strict policies that have curbed private car usage in a number of cities, most notably in Beijing.[Photo / China Daily]

BEIJING - The country's largest car rental agency, China Auto Rental Ltd, halted all taxi services starting Thursday, two days after its primary competitor eHi was denounced on national television for profiting from the lucrative business that violate laws.

Taxi services, which cost three to four times the price of regular car rentals, catered to a niche market of the financially affluent, according to Yao Junhong, executive vice-president of the company.

"A certain level of (the company's overall) profit" was drawn from these services, which are deemed violating regulations but had somehow found a way to snowball in the industry, he said.

"We have come to realize that taxi operations (for car rental agencies) aren't in line with existing laws and regulations. We are willing to accept media supervision, and right the past wrongs," Yao told a news briefing.

The gesture is the first such attempt in a booming industry, where a majority of the 5,000 to 10,000 registered car rental companies practically live on offering "chauffeur services", a fancy name for taxi operations.

The services are illegal in regulations at both national and local levels, particularly in seven provincial-level administrations, including the municipalities of Beijing, Shanghai and Chongqing, where taxi operations are limited to only licensed taxi companies.

"Making their services legal would justify the existence of unlicensed cabs. How, then, are we licensed cabbies supposed to survive? Who's going to protect our legal rights? It'll just mess up the market," said a cabbie with Beijing's Yinjian taxi company who did not want to be named.

Already boasting a near-monopoly in Beijing, China Auto Rental has apparently gained an upper hand with this latest move in its nationwide turf war with Shanghai-based eHi Car Service, the second-biggest player in the industry. The car rental market has soared in recent months thanks to increasing demand following strict policies that curb private car usage in a number of cities, most notably Beijing.

In Shanghai, eHi's public relations manager Lin Yan said the company is "not yet fully clear" on China Auto Rental's latest move and is therefore unable to respond.

"We're looking into it," she said when contacted on phone.

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It has been a tough week for eHi, where taxi operations contribute to more than half the entire business, according to an investigative report by China Central Television (CCTV). The coverage, which was aired on Tuesday, showed the dangers in such services, including non-contract-bonded transactions and drivers' failure to provide invoices or receipts. Consumer rights, the program said, "can hardly be protected in the case of legal disputes".

CCTV's denouncement and China Auto Rental's withdrawal from taxi operations are twin blow for eHi, which, since its formation in 2008, has insisted on a high-profile campaign to promote "chauffeur services".

Zhang Ruiping, the company's founder, chairman and chief executive officer, has openly acknowledged that the services are illegal. "Many things in China are illegal, but reasonable," he was earlier quoted as saying by The Founder magazine.

Its car pool rose from just 30 in 2008 to 7,000 today. In late 2010, eHi signed a definitive investment agreement valued at $70 million with a consortium including Goldman Sachs as the lead investor. China Auto Rental, meanwhile, received a 1.2 billion-yuan ($178.44 million) investment last year from Legend Holdings, parent company of IBM's PC division owner Lenovo Group.

China Auto Rental has 13,000 cars and plans to buy 25,000 others within a year to secure its temporary dominance in the still-fragmented car rental market, where the top ten players combined hold just 11 percent of the total share.

The country's car rental market is expected to experience an annual growth of around 25 percent for the next five years, according to consulting firm Roland Berger.