Government reins in industry with new rules seeking sounder development

By Ma Jingjing Source:Global Times Published: 2017/1/2 19:28:39

Stricter sharing

Metropolises around the world have sought to rein in the runaway growth of the sharing economy in 2016, of which Beijing and Shanghai are representative. Some believe the regulations aim to curb the development of the prominent industry, which has received a great deal of attention, as well as venture capital funding. However, analysts argue that the industry has grown too fast for its own good, giving rise to problems such as unreliable services, irresponsible customers and phony products. In this regard, government rules can slow the pace of growth so companies can focus more on the quality of their services.

Taxis crowd the curb outside a railway station in Qingdao, East China's Shandong Province, in October 2016. Photo: CFP

Taxis crowd the curb outside a railway station in Qingdao, East China's Shandong Province, in October 2016. Photo: CFP

In December 2016, Beijing and Shanghai, among many Chinese cities, joined the ranks of other metropolises around the world that have sought to rein in runaway growth of the sharing economy.

The Beijing municipal government decreed that only Beijing-registered residents and vehicles can be drivers for ride-hailing services, according to guidelines issued by the Beijing Municipal Commission of Transportation on December 21, 2016. Shanghai issued the same rules, effectively banning many existing drivers from the business.

Compared with the drafts initially proposed in October, "these rules are a significant step toward a more sensible and liberal framework, reflecting input from the public consultation period," domestic ride-hailing service provider Didi Chuxing said in a statement it sent to the Global Times on December 21.

In October, New York Governor Andrew Cuomo signed a bill that would fine hosts up to $7,500 if they get caught advertising a property on home-sharing platforms such as Airbnb, The New York Times reported on October 21, 2016.

It's a bit early in the game for local governments to be imposing such strict regulations on the industry, said Zhang Xu, an analyst at Beijing-based consultancy Analysys International. The rules may put the brakes on the rapid development of businesses such as ride-hailing, Zhang noted.

 "But in the long run, the government can quickly form policies to guarantee the smooth operation of emerging sharing economy models," Zhang told the Global Times on Thursday.

The sharing economy refers to an institution or individual making profits by renting idle resources to others to create value.

A funding favorite

Stricter government rules aside, analysts maintain that the sharing economy's model of putting idle resources to use can reap economic benefits, especially at a time when many traditional industries are in decline.

"Of course, the outlook for China's sharing economy is bright due to the potential demand," said Liu Dingding, a Beijing-based independent industry analyst.

The market for the sharing economy was roughly 1.96 trillion yuan ($282 billion) in 2015, according to a report released in February 2016 by the State Information Center and the Internet Society of China.

More than 500 million people have taken part in China's sharing economy, including 50 million people who provide services, according to the report. That latter figure amounts to 5.5 percent of the domestic working population.

Didi said that its platform in 2016 produced more than 17 million flexible work and income opportunities in which more than 2.07 million Didi and Uber China drivers made an average of 160 yuan a day.

The new business model of the sharing economy has given rise to 16 "unicorns" and more than 30 other companies valued at more than 1 billion yuan, according to a report by the Tencent Research Institute in March 2016. A unicorn is a high-tech company less than 10 years with a valuation of more than $1 billion.

Founded in 2014 in Beijing, online bicycle-sharing platform ofo has received five rounds of funding, including a recent C round of $130 million secured from venture capital firms such as CITIC Private Equity Funds Management Co and US hedge fund Coatue, according to a post on ofo's website in October.

As of October 2016, ofo had expanded to 22 Chinese cities. On December 23, 2016, the company announced it would expand overseas, starting with a series of pilot programs in cities such as London, according to media reports.

In terms of home sharing, China's leading home-sharing platform has grown quickly since its founding in December 2011.

The company had received more than 3 billion yuan in funding by August 2015. In June 2016, it acquired short-term accommodation service provider, according to a statement on its website. In October, it acquired the home-stay business of online travel agency Ctrip and Qunar.

Currently, Tujia has listings for more than 420,000 online properties in 325 destinations on the Chinese mainland and 1,085 in Hong Kong and Taiwan, as well as overseas, the statement said.

Quality over quickness

However, analysts pointed out that businesses in the sharing economy have expanded too fast over the past few years, giving rise to a series of problems such as unreliable service providers.

That's understandable, Liu said, considering that China's sharing economy industry has achieved in two or three years what used to take a decade for traditional industries.

"Due to the rapid growth, many unreliable services providers have entered the market," Liu told the Global Times on Friday.

"In addition, Chinese consumers have a high tolerance for poor quality products and services, indirectly leading to the rise of unreliable providers," Liu noted.

More than 3,000 ride-hailing drivers in Shenzhen, South China's Guangdong Province, have previously ­committed crimes or taken drugs, the Xinhua News Agency reported in March 2016.

Besides, some start-ups have twisted values, Liu said. "Currently, most start-ups only wish to satisfy their own interests rather than make society more efficient," Liu said.

Zhang believes local policies pose another challenge to firms in the sharing economy.

"These companies will have to find their own model of development under the framework of government policies," Zhang claimed.

Didi vowed to boost quality as it expands and will "continue to work with local authorities to ensure a smooth transition," according to a statement the company sent to the Global Times on Thursday.

Ofo will continue to cooperate with localities and actively take part in setting up related policies under the guidance of authorities … provide experience and support to the sustainable development of the industry, according to a statement the company sent to the Global Times on Thursday.

Liu said the sharing economy industry should solve problems and make quality rather than rapid expansion a higher priority.

In this regard, government policies can help slow the pace of growth and maintain the sound development of the industry by raising the threshold of service providers, Liu said.

"Online platforms should not only raise their standards for services providers, but standards for their consumers as well," Liu noted. "Suppliers can refuse to provide services to consumers with low credit."

"They can establish an assessment system to control the behavior of both suppliers and consumers to guarantee sound development," Liu said.

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