Police check the certificate of a ride-hailing car in Guangzhou, capital of South China's Guangdong Province in April. Photo: VCG

The Ministry of Transport (MOT) on Thursday warned of "great damage" from a brewing price war in the country's massive ride-hailing sector as more companies rush into lucrative markets, and it called for "reasonable competition" and tougher regulation.

Some cities have already tightened oversight of the sector by such means as reducing the number of permits for cars, but experts said that more regulations are likely at both the central and local levels to head off a potentially devastating price war.

"There have been some 'cash-burning wars' in the online ride-hailing industry in some cites… some companies use low costs and low prices as a weapon to win investors' money, which is used to offer high subsidies," the MOT said in an article posted on its website.

The ministry added that this situation has caused services to decline and traffic congestion in some cities to worsen.

More companies have launched online ride-hailing services in major cities in China, including online travel agency Ctrip, mapping services provider AutoNavi and local services provider Meituan Dianping.

As they struggle to snatch market share from Didi Chuxing, which has dominated China's market after buying out the local operations of  US-based Uber, some of the newcomers have reportedly offered drivers big bonuses and riders huge discounts.

The MOT post on Thursday noted that by waging price wars, ride-hailing companies are focusing on the volume of transactions rather than the quality of the services and safety.

"[Companies] need to comply with regulations and compete rationally. Law enforcement agencies also need to supervise the industry according to the law," the MOT's post read.

Nanjing, capital of East China's Jiangsu Province, has released new rules for the industry, including a total halt for new permits for cars to offer shared rides starting on Friday, China Media Group reported on Thursday.

More cities may follow suit to ease traffic jams, according to experts.

Yang Tao, chairman of the Nanjing Institute of City and Transport Planning Co, said that while the online ride-hailing industry has brought many benefits for residents, it has also worsened traffic conditions and thus needs "proper control" by the government.

"Different cities face different situations, so each one should conduct a thorough local survey and take appropriate measures to limit newcomers to the market," Yang told the Global Times on Thursday.

"A price war does no good to anyone - the riders, the drivers and the companies," he said, and regulators should take necessary measures including price controls to stop companies from competing unfairly.  

Zhu Wei, a professor from the China University of Political Science and Law, said that the industry needs new regulations to prevent a repeat of the "bike-sharing problem," which resulted in bike-sharing providers burning through cash and dumping millions of cycles onto crowded urban streets.

"The integration of old and new industries is a long-term trend and we need a new set of regulations that's better adopted to the changes," Zhu told the Global Times on Thursday, adding that the central government should consider forming a "joint commission" to oversee these changing industries.