A Chinese mobile phone user uses the taxi-hailing app Didi Dache backed by Tencent on his smartphone in Shanghai, Oct 16, 2014. [Photo/IC]

Hangzhou's plan to refund nearly 100 million yuan ($15.73 million) to taxi drivers is a welcome move to embrace Internet-based advanced technology that could help make this beautiful city in East China's Zhejiang province not only smart but also economically competitive. This is an example other local governments will do good to follow.

The rising popularity of taxi-hailing apps has added to the difficulties of taxi drivers in many Chinese cities. While cabbies still have to hand a handsome part of the money they earn to the companies they are registered with as taxi franchise fees and operation fees, the emergence of taxi-hailing apps has challenged the long-established taxi service cartel by giving passengers access to a larger pool of private vehicles.

To address their woes, local governments have to choose between the old policies governing the taxi service sector and swimming with tide to apply advanced Internet technology. To break the existing monopoly of taxi management companies and usher in market reforms, however, they have to go with the latter.

Most previous cabbies' demands for reduction in the fees collected by their companies have failed to highlight how deeply entrenched vested interests are in the sector.

But since Didi Kuaidi, the Chinese rival to Uber, a taxi-hailing app that is currently valued at $15 billion, has disturbed the status quo in the taxi service sector, some local governments seem ready to adapt to Internet technology.

The fact that online retail sales soared 48.7 percent in the first half of this year despite the broader-than-expected economic slowdown speaks volumes about the great potential of Internet-based businesses in China.

Hangzhou has made a smart move to help the local taxi service sector adapt to the fast-changing technological reality and break the taxi management companies' monopoly.