A car rental logo in a parking lot in Shanghai. China's car rental industry could rise to 38 billion yuan by 2014, according to the consultancy firm Roland Berger. [Photo/China Daily]

Absence of a national law could hamper the sector's healthy growth

BEIJING - Demand for car rental services rose strongly during China's three-day Labor Day holiday, indicating great potential for leasing in the world's second-largest economy. However, experts are calling for an improved legal framework to better govern the booming sector.

"Before the May Day holiday (April 30-May 2) starts, all of our available cars were booked," said Shao Wei, senior executive at the Shanghai-based eHi Car Service Co Ltd.

"We got a lot of calls for car rentals and by April 30, most of our popular models were booked," said Yao Ning, general manager of Shenzhen-based Baoan Car Rental Co Ltd.

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Just as car sales increased rapidly, so has the popularity of rental services, especially as new car purchases are limited by a quota system in cities such as Beijing.

China's car rental market was valued at about 18.2 billion yuan ($2.8 billion) in 2010, up from 4.6 billion yuan in 2005. The industry could rise to 38 billion yuan by 2014, according to a report by Roland Berger, an international consultancy.

The self-drive rental business accounts for 46 percent of the total market, while chauffeur rental, or limo service, takes 54 percent, according to the report.

By 2014, the market share of self-drive may rise to 49 percent while limo services are projected to drop to 51 percent, the report said.

As the market expands, however, problems are growing, one of which is lack of laws and regulations governing the growth of the sector.

"There is no national law or regulations for the management of the car rental sector," said Guan Minzheng, a Shanghai-based lawyer, quoted in the China Youth Daily.

"The previous regulation on rental management was abolished in 2007 because it lagged behind the fast development of the sector," he said. "Therefore, there's no law banning (illegal) chauffeur rental services."

To fill the legal vacuum, the Ministry of Transport has initiated a program soliciting opinions from the industry and experts in preparation for devising a national regulation on the car rental sector. That's according to an expert from a transport association, who participated in the process but declined to be named.

In March, some media outlets attacked a domestic car rental company for its alleged "illegal" chauffeur services. But as there is no law or regulation banning the service, it is pointless to accuse the company, the expert said.

Another problem facing the sector is that the rental companies are often held responsible if customers sustain injuries in road traffic accidents, analysts said.

According to the results of a number of court rulings, companies are often forced to pay indemnities to the injured, which is not fair to the rental companies, the experts said.

The segmentation of the market has also put a spoke in the wheel of the sector. At present, the top 10 companies together accounted for a mere 11 percent of the market share in 2011, according to Roland Berger. That segmentation has prevented companies from making use of national networks to provide better services and cut costs, experts said.

The top player, Shouqi Car Rental Co Ltd, holds only 3 percent of the national market share, while eHi, the second largest domestic player in terms of market share, accounts for just 1 percent, according to the Roland Berger report.