SHANGHAI/BEIJING (Reuters) - China’s largest ride-hailing company Didi Chuxing has suspended its carpooling service after a passenger was killed, and is likely to face tighter oversight that will squeeze driver numbers and extend customer waiting times.

Logo of Didi Chuxing is seen at its headquarters building in Beijing, China August 28, 2018. REUTERS/Jason Lee

The incident, which follows a similar grisly killing by a Didi driver in May, triggered public and government backlash - and created an opening for rival services to chip away at Didi’s dominance in China, industry analysts say.

“There is certainly room for others to serve the market, and such incidents expose an apparent weakness in Didi’s business model: aggressive expansion without adequate control of the integrity of the drivers on their platform,” said Bill Russo, head of Shanghai-based consultancy Automobility Ltd.

Didi founder Cheng Wei and President Jean Liu issued a lengthy and deeply apologetic letter late on Tuesday, saying “our vanity overtook our original beliefs.” It was a humbling move for a Chinese company celebrated as a homegrown “unicorn” in state media.

The company controls 90 percent of the Chinese ride share market, according to a Bain report in May. Didi says it makes 10 billion trips a year.

Valued at $56 billion in a fundraising round last year, Didi is trying to expand globally and is considering a giant initial public offering as early as next year. It bought rival Uber’s China business in 2016.

But now it may need to tap the brakes. This week, regulators in major cities, including Beijing, Chongqing, Dongguan, Guangzhou and Shanghai, ordered company officials to suspend drivers without proper operating licenses and stop new registrations for unqualified drivers, government statements and local media said.

Tougher safety measures and driver screenings are likely, analysts said. Already, Didi says it rejects tens of thousands of unqualified driver applications every day.

Didi had already faced mounting public frustration over waiting times and concerns that it had not done enough after the May killing. Drivers complained that working for the company had become less lucrative.

In a statement sent to Reuters on Wednesday, the company said it would “do everything we can technologically and institutionally to prevent crime,” adding that it uses technology to improve efficiency.

It added that based on an eight-hour day, its drivers made 6,000 to 7,000 yuan ($873-$1,018) per month, roughly three times the 2,120 yuan minimum wage in Beijing.

In 2016, the official Beijing Youth Daily newspaper reported that drivers earned more than 10,000 yuan per month at the height of the subsidy war between Didi and Uber, which made them popular employers at the time.

There are more than 80 businesses with licenses to operate in what the Bain report said is a $30 billion Chinese ride-hailing sector, which includes Tencent-backed 0700.HK Meituan Dianping, CAR Inc and Geely Holding Group's CaoCao Car.

Meituan and five other companies either declined to comment or did not respond. CaoCao Car said in a statement it only hired full-time drivers and used no privately owned cars.

Signs were already emerging last year that hailing a ride with Didi was getting harder. In June 2017, average driver response rates fell 13 to 40 percent in some densely populated areas across China’s largest cities compared with a year earlier, according to data Didi sent to Reuters in January.

Didi declined to provide updated numbers, or data on wait times. However, domestic media reports this year include complaints over long wait times.

Li Qiangzhi of the state-backed China Academy of Information and Communications Technology told the China News Service this month that between March and July the number of ride calls accepted by all Beijing ride-hailing service drivers fell 22 percent, while the time to respond to a call was 3.4 times longer on average.

REGULATORY BACKLASH

Didi’s popularity in China has amplified the outcry and passenger frustrations.

In China, the number of rides per day on Didi’s platform rose to 20 million from 14 million after its deal with Uber in 2016.

That year, the government imposed stricter regulations, such as a rule in some places requiring drivers to have a permit to work and live in the city where they drive, which excludes the large pool of migrant workers.

Didi said Wednesday it supports 30 million drivers, and rides have surged to over 30 million a day.

The sudden regulatory scrutiny in the five days since the killing could signal a shift for Didi and the industry.

“Chinese technology companies have a culture of moving fast and breaking things, and while Didi got a free pass from the regulator for the first incident ... it is unlikely to get off scot-free the second time,” Richard Windsor, a technology analyst, wrote on his Radio Free Mobile blog.

Transport officials in Dongguan, in southern China, told Didi that it had far more drivers operating in the city than the total number of ride-hailing drivers registered there, The Paper, an online news site, reported.

“There are still a large number of drivers and vehicles that do not have the regulatory qualification to operate,” it cited Dongguan transport officials as saying.

DRIVER GRUMBLING

Didi is also contending with dissatisfaction among drivers, with at least eight strikes in different cities across China in the past year, local media have reported.

Some of the strikes protested how much Didi collects from drivers, while others were over fines drivers had to pay after regulatory changes, the reports said.

Like passengers, drivers have other companies to choose from.

Four Didi drivers in Beijing told Reuters the company had in recent months persuaded them to obtain a certificate to register their cars as vehicles used for ride-hailing, an unpopular step.

“If we register our car, the car is forced to be scrapped after eight years. No one actually wants to get a certificate,” said one, surnamed Zhang.

Those four, as well as three other current or former Didi drivers, said they were frustrated with Didi’s cancellation of subsidies after the deal with Uber.

Even changes such as stricter dress standards for drivers in its premier service made life harder, they said.

“Last week, some people complained that my car is smelly. Didi then lowered my rate and cut 600 yuan ($87) out of my earnings. That means I did one week for nothing,” said one Beijing driver, surnamed Yang.