The eastern Chinese city of Yiwu announced it would gradually give up quotas for taxi numbers, vowing to support Uber-like taxi-hailing apps on Wednesday.
Such apps have been a topic of controversy in the city, with local authorities fighting to keep the market as it is.
But Yiwu's reform is deemed by many as a progressive step toward opening the taxi market, which is essentially a monopoly entrenched with vested interests and lacks transparency.
"The market-oriented reform, which deals with the shortage of taxis and high contract fees for the drivers, is the inevitable course towards the sustainable growth of the taxi business," said Zhou Rongxing, head of the city's transportation management bureau.
On Wednesday afternoon, the bureau held a public bidding for the establishment of five new taxi companies, the country's first bid for new taxi businesses.
A total of 76 bidders contested for five slots, which are allowed to run 450 new taxis and must have 8 million yuan (1.3 million U.S. dollars) in deposit for each company.
Lou Xianming, a local private businessman, was among the five to win the bid.
"I was excited to have the chance to participate," said Lou, who currently runs a passenger bus service.
Yiwu will not impose any restrictions on the number of taxi companies and taxis after 2018, said Zhou, adding that the market will play the decisive role in running the taxi business.
Six taxi companies currently run 1,330 taxis in Yiwu, which is the world's largest small consumer goods exporter and home to more than two million residents, 15,000 of which are foreign business people.
The state taxi management system is characterized by stringent market entry requirements and a cartel of taxi companies. Companies must pay operation license fees to the government, which are then transferred to taxi drivers who always complain they are asked to pay too much while passengers often find it difficult to hail taxis when they need them.
There has not been a single taxi added to the city since 2008.
The unchanged number of taxis and de facto monopoly of taxi companies led to declining service quality and public complaints.
Taxi drivers, who have to pay exorbitant contract fees, also lamented on their misfortunes.
"If the reform is not in place, we will not be able to run our business any more," said He Jun, a veteran driver in the city.
He complained that he had to pay a 250 yuan contract fee to the taxi company every day, in addition to the 150 yuan petrol fee on average each day. He said he could hardly make ends meet.
The new measures will cut half the operation license fees taxi companies pay to the government to 5,000 yuan annually for each taxi this year and cancel the fees completely next year.
"We will give all the money the government exempted from us to the drivers," said Chen Chengming, general manager of Zhejiang Hengfeng Transportation Co. Ltd, one of the six licensed taxi companies in Yiwu.
Elimination of contract fees means 10,000 yuan more every year for drivers, said Chen, whose company runs more than 250 taxis and employs 700 drivers.
The reforms are also part of the city's move to embrace technology.
The popularity of Uber-like mobile apps, which allows customers to submit a trip request to crowd-sourced taxi drivers, has challenged the traditional taxi business.
In some areas, they have evoked heavy-handed opposition by local authorities.
Uber's offices in the southwestern city of Chengdu and the southern city of Guangzhou were raided earlier this month for failing to abide by taxi management rules. The ride-sharing service provider allegedly hired unlicensed private vehicles for business, which is illegal in China.
Despite opposition against mobile taxi-hailing apps by some local authorities, Yiwu will support the new model, according to the reform outline released on Wednesday.
Yiwu will encourage Internet companies to jointly build taxi-hailing platforms with taxi companies, according to the plan.
"Yiwu's reform will be a model for other Chinese cities," said Zhang Baoyi, head of the Social Sciences Research Institute under the Tianjin Municipal Academy of Social Sciences.
"With the development of technology, we could run the taxi business by GPS system and mobile apps, instead of the taxi companies, which get undeserved huge profits, as the intermediary."
Veteran driver He Jun hopes the government will also crack down on unlicensed vehicles for commercial operation, whose number might be ten times that of taxis.
"The opening of the taxi market is a good thing as it will help force out the unlicensed ones," he said.
"We are not afraid of competition as Yiwu never lacks a flow of people."