Shanghai has banned taxi drivers from using Uber-like booking applications during rush hours, beginning this month. The decision came despite the popularity of the smartphone apps among passengers and drivers alike and despite a subsidy for their use offered by China’s top dot-com firms.

The local government regulator says that the taxi-booking apps “create social inequality and upset the orderly running of the city’s taxi market.” It’s true that many elderly people, among others, don’t use smartphones or know how to use mobile apps and get squeezed out of available taxis at peak times.

I am not questioning the wisdom of the government in deciding to step into the fray. It’s actually quite rare for the government to intercede in China’s mobile Internet market, which is more open than, say, the finance or telecommunications markets.

As an observer of the technology industry, I am more interested in finding ways to solve this problem through technologies. Happily, I believe I have. But more on that later.

Since March 1, taxi drivers have been prohibited from taking bookings via mobile apps from 7:30-9:30am and from 4:30-6:30pm. Meanwhile, drivers of vehicles licensed for hire are not allowed to conduct business via taxi booking apps. Kuaidi Taxi and Didi Taxi, financed by dot-com firms that offer the apps, are banned from providing drivers with bookings when there is already a passenger in their vehicles, according to the Shanghai’s transportation management department.

These measures are supposed to give better advantage to people who have to hail taxis on the street, according to the Shanghai Transport and Port Administration.

Alibaba-invested Kuaidi Taxi and Tencent-invested Didi Taxi offer subsidies for passengers and drivers using the apps. The two companies account for the lion’s share of Shanghai’s taxi booking software market. They have cornered a combined 80 percent of the market, according to Beijing-based research firm Analysys International.

Passengers are now paid 10-12 yuan for each of their first two rides a day if they use Tencent or Alibaba’s mobile payment services. Drivers are paid a 10-yuan subsidy for each of the first 10 orders they take with each application every day.

The money incentives have caused some drivers to focus on bookings from apps to the exclusion of picking up those hailing taxis in the street.

The marketing practices of the taxi booking software companies, the tips function of the apps and the simple registration steps for drivers and users were unfair and were upsetting the fine image of a trustworthy and orderly taxi system in Shanghai, Shanghai Daily reported last week, citing the local authority.

Under new government policies, passengers standing at designated hailing sites who are ignored by passing taxis with their top light signaling “available” can file complaints either with the taxi companies or with the city’s 12319 hotline. Drivers found guilty of breaking the new rules face a 200 yuan (US$32.66) fine and a 15-day suspension. In some cases, licensee can be revoked. That is certainly a way to get the attention of cab drivers.

The new rules have sparked heated debate in the city.

“It’s simply unreasonable,” Zhang Jian, a driver for the Shanghai Haibo Taxi Co, was quoted as saying in Shanghai Daily. “If I’m given any kind of punishment for doing that, I will fight it.”

He said subsidies from the app software companies add about 1,500 yuan to his monthly income.

Some passengers complained that the apps “make no sense” if they can’t be used during commute hours.

In my opinion, there are several ways to improve the situation.

Family version applications

Didi and Kuaidi can allow family members to share one account with only one payment. It can be operated by the family member most technologically savvy but allow anyone in the family to book a cab.

Talking about it with my parents, aunts and uncles, I found that payment for the app is the biggest deterrent to use. The system requires several steps, including application for a payment account and bundling it with a bank account. The most frequently asked questions are: “How do I bundle accounts? Is it safe?”

The one-click solution

This is for feature phone users. It’s actually a related product of the family version. It also requires at least one smartphone and payment account. Other family members can use pre-configured, one-click button with feature phones. The phones are used for confirming location and contacting drivers. The payment is then executed by a tech-savvy friend or family member.

This method requires the booking app firms to develop a client-end version for feature phones, which are most tied with Nokia’s Symbian system. Nokia, Alibaba and Tencent have the technology and capital for the development.

The charity version

This is for those people who don’t have a handy technocrat at hand to help them. Instead, taxi app companies could cooperate with charity groups, social community organizations, hospitals and factories to help them call for taxi bookings and offer them special discounts or even free rides. The methods suit people like the elderly, who frequent hospitals, or migrant workers who can’t afford elaborate phones.

Kuaidi has already made some headway in that direction. It has tested offering free rides for elderly people in Beijing. If successful, it’s likely to be expanded in cities nationwide.

Integrating booking services with social tools

Under this system, people could call to book a taxi through WeChat accounts or other groups, even without applications. Both passengers and drivers can enjoy subsidies in that way. Tencent has more than 400 million WeChat users, while Alibaba has invested in Sina Weibo and map services AutoNavi. They are capable of providing such services.

The taxi application market is among the hottest in the offline-to-online sector. It has become a battlefield among top players in China’s mobile Internet industry. Both Tencent and Alibaba aim to develop and keep users through the services, which is why they are willing to invest hundreds of millions of yuan for subsidies. They want to improve brand awareness and encourage more people to use services like Alipay and WeChat.

The methods cited above would help them reach out to a broader, untapped group of people at a limited cost. When the market and technology work hand-in-hand, the “third” hand of government isn’t necessary.

Technology aside, the local transportation authority says it plans to add more taxis during rush hours to meet rising demand.