The Ministry of Transport disclosed on Saturday that it was mulling draft regulations on ride-hailing services, two days after industry leader Didi Kuaidi secured the municipal license in Shanghai for private-car booking services.

In a statement on its website, the ministry recognized the "positive role" of the Internet to car-booking to boost transport efficiency, but warned of prominent problems such as lack of protection for passengers' interests, and their encroachment on the taxi market.

The regulation will make the car-hailing service providers such as Didi Kuaidi and Uber hold major responsibility for any disputes or safety accidents during the operation, and vehicles for non-commercial use will be banned from offering such services.

Though increasingly popular among users, online ride-booking services have long been warned by authorities in China that they operate in a gray area of the law, under which drivers of private cars are forbidden from carrying passengers for profit.

Their popularity has also been a source of ire among taxi-drivers who are now facing more competition.

Saturday's statement came two days after Didi Kuaidi was licensed by the Shanghai Municipal Transport Commission to offer private-car booking services.

The Shanghai municipal government said it will grant ride-on-demand licenses for companies that meet criteria including making their data accessible to regulators, having their servers in the Chinese mainland, and screening both vehicles and drivers.

Operators are also required to insure vehicles and passengers against traffic accidents in policies worth up to six million yuan (nearly one million U.S. dollars).

Didi said it is also working with transportation regulators in other cities in China to replicate the licensing model.

Uber also announced on Thursday that a new company it set up in the Shanghai free trade zone expects to receive a license for ride-on-demand services soon.

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