Chinese digital services app Meituan Dianping has confirmed that it has no plans to expand its ride-hailing service beyond its two pilot cities, Shanghai and Nanjing, having halted its attempts to challenge leading taxi app Didi Chuxing in the region.

Meituan originally planned to expand to several other cities, including Chengdu, Hangzhou and Xiamen. However, the company confirmed its decision to halt expansion – which was originally suggested ahead of the company’s $4.2bn initial public offering in September – via an earnings call on Thursday.

The company, which started out as a voucher and discount website before expanding into other areas, hoped to rival companies like Didi and Alibaba by offering a number of services and products, including food delivery, bike rentals, hotel booking and ride-hailing.

However, after spending aggressively in an attempt to take customers away from rivals, Meituan will put its ride-hailing operations on hold. Bike-sharing, through its Mobike division purchased for $2.7bn earlier this year, will also be scaled back. The company confirmed that it will be reducing its fleet in order to “avoid an oversupply”.

Is regulation holding back ride-hailing in China?

According to a recent report published by ResearchAndMarkets, the Asia-Pacific ride hailing market is projected to grow to $53.8bn in the next five years.

Didi Chuxing leads the way in the China market, with its service available in more than 400 cities across the country. In 2017, the company completed 7.4bn rides for more than 450m users.

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By GlobalData

However, market growth in China is being held back by increased regulation from authorities.

Regulators in China launched strict verification requirements earlier in the wake of the rape and murders of two passengers by drivers hired by Didi Chuxing.

The new rules, set out by the Chinese Ministry of Transport and the Ministry of Public Security, allow regulators to conduct random checks on platforms and their drivers. Service providers are also required to limit the number of requests that drivers can accept and block drivers from accessing passenger information.

Didi, keen to undo the reputational damage that these murders caused and improve safety for its customers, has introduced a number of measures that do just that. Drivers are only allowed to operate at night after they have completed six months of service and at least 1,000 successful trips.

However, according to TechCrunch, increased regulation has caused driver numbers to fall and, subsequently, passengers are finding it more difficult to find a ride on platforms such as Didi and Meituan.

The company offered no explanation for its decision to halt expansion, but these changes could have something to do with it.

However, its decision will raise concerns for consumers. With competition lacking, Didi – which reportedly already has a 80% market share – will be free to dictate prices in the rapidly growing market.

Safety is, of course, paramount, but competition is also needed to fuel innovation and force change in the market.