Growing up, China was known for many things- mass production, the food and the ubiquitous bicycles. Famously, everyone from a construction worker, to their supervisor and the CEO would ride to work on a bike- a symbol for equality in a Communist landscape. Over the years, as economic prosperity boomed across multiple cities all over China, the bicycle continued to remain the backbone of the working class, but it’s use declined. Now, with the advent of bike-sharing apps, the bicycle industry in China has a whole new face.

Bikes used mainly by tourists parked at Olympic Forest Park in Beijing. Photo: IC

Once, 1 in 3 people in China owned a bicycle. With a population of over a billion, this meant that a significant industry was to be found in their production, repair and maintenance. Owning a good bicycle was both a status symbol and a necessity for the hard working population. Ride-sharing apps like Ofo and Mobike are bringing bikes back to the Chinese, and global streets- alllowing bikers to log in, ride, and park anywhere.

What’s the competition?

Having raised over $2 Billion, many bike-sharing startups have risen and fallen over the past 2 years. 2 players dominate the Chinese market:

Ofo, backed by Alibaba has traditional-looking yellow bikes. It boasts of a fleet of over 10 million bikes globally, operating in over 200 cities in 20+ countries. It has a valuation of over $3 Billion, having raised $886 million in March this year. Mobike, another key player, has latest space-age bikes with a driveshaft rather than chain-propulsion to reduce the scope for breakage, GPS and smart-locks powered by a solar panel that lines the front basket. Airless rubber tires can’t be punctured, and a single-side wheel release allows for easy maintenance. Mobike is backed by tech giant Tencent.

Just another bubble?

Many of the startups are already facing the effects of saturation. To capture a significant share of a new market brimming with competition, share companies are forced to give heavy discounts, dropping the price to a few pennies or even $0.

Guangzhou-based Mingbike was recently sued by the Guangdong Consumer Council, after more than 30,000 complaints made by customers left unable to reclaim their 199 yuan (US$29.87) deposits.

Workmen repair Ofo Bikes in Shenzhen

China Consumers Association demanded bicycle-sharing firm Kuqi Bike return deposits to its users and assume its legal responsibilities after Kuqi had given a fake address for people seeking deposit refunds, and ignored more than 210,000 complaints since August 2017.

Bluegogo, one of the former big-weights, closed due to a shortage of cash. Wukong Bike, based in the western city of Chongqing, shut down just five months after its launch in January 2017, racking up losses of nearly US$150,000.

Yet another company, Coolqi, with a reported fleet of 1.4 million gold-colored bikes deployed in China, looks for a buyer. Its 1.5 million registered users have paid a 299 RMB deposit, putting an estimated $67 million in deposits in jeopardy.

Costing Woes

Tough competition aside, the bike-sharing business is expensive. Bicycles are prone to breakdown- the chains come off, the brakes fail, the seat adjustment clasps are wrenched off, and the companies need to hire a large staff to maintain and repair bikes. This is primarily where their business model differs from cab-sharing companies like Uber and Didi, where the car owner is responsible for its upkeep.

City vs Bicycles

The bike-sharing economy is also in trouble with authorities as well. The absence of docking areas may be convenient to some, but they also cause clogged sidewalks and traffic accidents. The Chinese technology hub of Shenzhen, recently halted local ride-sharing giant Didi Chuxing’s bike-sharing expansion. Authorities in Nanjing and Shanghai recently asked bike-sharing companies to assign license plates to each bike and register them with the government.

Installing license plates will help cities better track the whereabouts of millions of bikes through city-wide GPS monitoring platforms. There are also calls to establish more centralized supervision of user deposits, which are now stored in individual banks accounts.

Graveyards in Chinese cities are filled with abandoned bikes

Beijing has issued new regulations, where shared bikes must be trackable by GPS, and mandated smart terminals to collect information about the location, use time, and lock status of bikes. The city has also directed availability of electronic maps on the app for users to show parking lots and areas where parking and riding are prohibited.

Beijing wants all shared bikes to be upgraded or scrapped after three years in operation. Bike companies have been directed to ensure that at least 95 percent of shared bikes on the market are good for use, and recall sub-standard bikes. The city has temporarily banned addition of new shared bikes.

Across China, provinces have nominated refuse dumps for shareable bikes, where thousands are discarded in jagged aluminum mountains.

The Upside

Not all hope is lost from this new industry though. While analysts anticipate that bike-sharing itself may never be profitable, monetary opportunities lie in the way people use their bikes.

One is brand cooperation- offering coupons for a store that is on a rider’s route- companies can capitalize on the competition already existing between cafes, and tie-ups and parking spaces can potentially lure customers into picking one over the other. Mobike reportedly already has a deal with McDonalds.

Advertising, on wheels, could be another revenue source.

Another potential avenue is online payment. For example, Ofo, backed by Alibaba, now uses Alipay as its primary payment method. Alipay users with good credit ratings can also ride Ofo bikes without pre-paid deposits — which potentially helps to attract more people to Alibaba’s platforms

Data is also a potentially valuable resource as the bikes track how they are being used. Mobike shares its data with city planners and public transport agencies, and has its own AI platform, Magic Cube, to interpret the data each of its bikes collect as they track their use.

Mobike claims to transport more people than taxi services in several Chinese cities. The number of users in Chengdu have supposedly surpassed train riders in the city.

Govt Backing

China’s President Xi Jinping has repeatedly hailed the sharing revolution as China’s gift to the world. The government has backed the industry with perks like tax breaks and free office space. And with officials predicting a 40% growth rate, the sharing economy should comprise 10% of China’s GDP by 2020, rising to 20% by 2025.

Limebike, a California-based startup, is giving tough competition to the Chinese firms | Source: StartupWorld

Making it Global

Both Ofo and Mobike currently work in over 200 cities worldwide, and are rapidly expanding. They face tough competition from home-grown companies like the California-based LimeBike, which raised $50 million last year to expand its services across more U.S. cities. A Canadian bike-sharing company Dropbike had placed bikes in a city of Kingston as part of a test rollout, providing 100 bikes for a city with a population of 129,000. Even Uber is now offering a similar bike-sharing model in various cities across the USA.

The scope seems to be endless. There are thousands of cities in the USA, China, Europe and rest of the world without “dockless” bike-sharing options. Many cities are just experimenting with bike-sharing, and will take some time to figure the model out.

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