Since 2017, China has adopted the "tolerant and prudent" policy in regulating emerging digital platform industries. The impacts of this policy on labour precarity have been rarely studied. Drawing on an original survey of over 600 ride-hailing drivers in two Chinese cities, Nanjing and Beijing, we conduct a political economy analysis for a three-party framework involving the municipal government, capital, and labour. We find that, in accordance with the "tolerant and prudent" principle, municipal governments stipulated regulations regarding the qualifications of ride-hailing vehicles and drivers. These regulations, although they can help reduce labour precarity in the marketplace for licensed drivers, have exacerbated precarity in the workplace. Specifically, in response to the regulations, the ride-hailing platforms aligned with third- party rental companies that provided licensed vehicles. This arrangement has effectively trapped many ride- hailing drivers in the industry: our quantitative analysis shows that drivers bounded by a rental or rent-to- own agreement worked significantly longer hours than counterparts who steered their own vehicles.