Shanghai police are cracking down on ride-hailing apps’ out-of-town drivers who came to the megacity to take advantage of subsidies doled out by two tech giants in an escalating price war to dominate the industry.

Over the three-day Tomb-Sweeping Festival holiday, during which Chinese people pay tribute to their ancestors, local transport authorities fined 115 drivers of ride-sharing companies for not having a local household registration document or local license plate, the Shanghai Municipal Transportation Commission announced Sunday.

Since late 2016, major cities have stipulated that ride-hailing companies can only put local residents behind the wheel. However, subsidies have attracted risk-taking drivers to Shanghai, where on-demand service provider Meituan-Dianping recently launched a ride-sharing service to challenge industry leader Didi Chuxing. According to financial news outlet Caijing, Meituan offers a variety of subsidies: When a driver earns at least 2,200 yuan ($350) a week, for example, the company rewards them with an extra 800 yuan.

Drivers who violate the rules for the first time are fined 10,000 yuan and have their license suspended for three months, the transport commission said. Those who break the rules the second time, meanwhile, face a 30,000 yuan fine and a six-month license suspension.

Additionally, the commission ordered Meituan to stop hiring unqualified drivers, terminate contracts with out-of-town drivers already registered on its platform, and stop “unfair competition in the name of subsidies.” Meituan has been given seven days to rectify these violations or risk having its business license revoked.

The company’s foray into the ride-hailing business is sure to face a bumpy road ahead. When Meituan launched its service in Shanghai on March 21, it was reprimanded for using slogans such as “Go with 1 yuan” in its advertising. Local authorities subsequently prohibited the company from setting prices at below cost. Then on April 3, the Shanghai transport commission imposed 100,000 yuan penalties on both Meituan and Didi for continuing to allow out-of-town drivers on their platforms.

Despite the official backlash, Meituan’s generous subsidies and discounts have attracted both drivers and riders and been a thorn in the side of rival service Didi. To counter Meituan, Didi — which acquired Uber’s China operations in August 2016 — instituted a promotion whereby it would offer free rides at certain times during the day.

In response to the transport commission’s feedback, Meituan has said that it will upgrade its review system and encourage customers to report out-of-town drivers.

Editor: David Paulk.

(Header image: A driver takes an order using the Didi Chuxing app in Xi’an, Shaanxi province, Oct. 25, 2016. Huang Jianli/VCG)