Experts predict govt will soon regulate rapidly growing industry

By Huang Ge Source:Global Times Published: 2017/2/28 18:13:39

The deposit debate

Bike-sharing has taken China by storm. But along with the business's success have come questions about how bike-sharing companies manage their user deposits. Over the last few days, domestic media reports have questioned what the companies do with the deposits and speculated whether there is anything stopping them from misusing the funds. Experts predicted that the government will step in this year and impose a wide range of regulations on the industry, including rules on how companies deal with user deposits. Right now, the industry continues to expand rapidly, but the intensifying competition will likely soon lead to acquisitions, as leading companies attempt to cement their position in the market.


Bikes for rental sit outside the Qingnian Road subway station in Chaoyang district, Beijing on Sunday. Photo: Huang Ge/GT

Beijing resident Vincent Chen has embraced bike-sharing as the way to get around town.

"It is really convenient," the 20-something white-collar worker said. "One can find the service in public parking areas outside subway stations, shopping malls and office buildings."

The bike-sharing business arrived in Beijing about six months ago and has since exploded with new entrants, most of whom offer bicycles in a recognizable color. Mobike bicycles are highlighted in orange. Ofo's bikes come in yellow, U-bicycle in green, Xiaoming Bike in blue and newcomer bluegogo also in blue.

At present, there are more than 30 bike-sharing companies operating in China.

The industry's rapid ascent has stirred up a frenzy in the capital markets as investors have climbed over each other to get money into the business. Four companies alone - Mobike, ofo, U-bicycle and Xiaoming - completed 15 rounds of funding in 2016, the Guangzhou-based Southern Daily reported on Thursday.

On February 20, Mobike, which has raised more than $300 million in total, announced a new round of funding from investors including Singapore-based Temasek, the bike-sharing company said on February 20 in a statement sent to the Global Times.

Media reports have estimated the number of bike-sharing users will reach 50 million in 2017.

What do they do with deposits?

"I received messages from both Mobike and ofo the other day. The platforms were offering users free rides from Friday to Sunday," Chen told the Global Times on Monday. "It seems that both companies are trying hard to attract users."

A Mobike user needs to put down 299 yuan ($43.50) as a deposit to access its fleet of bicycles scattered around cities in China. The company then charges up to 1 yuan an hour to rent the bicycles. U-bicycle requires a deposit of 298 yuan; Xiaoming Bike requires 199 yuan and ofo and bluegogo each ask users to put down 99 yuan.

Domestic media has taken issue with these deposits, highlighting the lack of government supervision over what the companies do with the billions of yuan they have collected. Meanwhile, their user bases have continued to grow.

In the first week of 2017, the number of Mobike users grew 20 percent from the previous month to 5.85 million, according to data released by Beijing-based consultancy iResearch Consulting Group on February 14.

The company has collected an estimated 1.75 billion yuan ($254.75 ­million) from its active users.

Users can get their money back, but it usually takes two to seven business days, during which time they can't use Mobike's service, according to the ­Mobike app's terms of service.

On February 21, China Central Television ran a report questioning whether the deposits might be at risk.

Some have wondered what prevents the bike-sharing companies from investing user deposits to generate extra earnings.

Mobike said it has exclusive bank accounts for the deposits, which it guarantees, domestic news portal reported on Thursday.

In a statement sent to the Global Times on Monday, ofo said it has special bank accounts for deposits and does not use the money for any other purpose.

Nonetheless, there are no rules governing what the companies can do with the deposits, experts said.

It is possible for the bike-staring start-ups to employ the deposits in production or to make investments because it would not be against the rules, said Men Changhui, an analyst from Beijing-based CCID Consulting.

Liu Dingding, a Beijing-based independent Internet industry analyst, agreed. "I've heard many lawyers say that investing bike-rental deposits is similar to illegal financing, even though the companies said they do not use deposits for other purposes."

Regulation on the way

Experts predicted that the Chinese government will roll out regulations for the industry in 2017.

Bike-sharing companies are expected to bring in third-party financial institutions to oversee deposits, Men told the Global Times on Sunday.

For instance, bike-rental companies are encouraged to create exclusive accounts in banks to save deposits, he said.

Moreover, China's Ministry of Commerce is expected to ensure fair competition and stabilize prices in the sector by rolling out antitrust rules, Liu said.

The Beijing Municipal Commission of Transport said it would roll out a series of measures in 2017 to rein in the industry's growth, improve the quality of services and promote a "relative guarantee mechanism," domestic news portal reported Monday.

"It is fine with me if bike-rental companies collect deposits, but they should safeguard the capital and make sure to return the money in a timely manner," said Zhang Li, a college student in Beijing.

If it takes too much time, say three days or more, people will definitely start wondering if the platforms are using the money for other purposes, she told the Global Times on Monday.

Industrial prospects

The development of bike-sharing companies is similar to that of the car-sharing industry, said Liu, the independent industrial analyst.

He said that the cost and access threshold for bike-sharing platforms is much lower than car-sharing firms. "But it grows faster," he said.

"Given the current market, it is unlikely that one large bike-sharing firm will buy its rivals, but if too much capital is burned and harms investor interests, acquisitions will soon come," Liu said.

No advanced technology is needed for the sector, but capital is what really matters, Liu noted.

The bike-sharing company that is first to get its service going around the country will be the one to rise above the competition, experts said.

These bike-sharing companies are also stepping up efforts to expand their presence outside China.

Ofo has already entered Silicon ­Valley in the US, London in the UK as well as Singapore, the company said.

The company has tied up with several large domestic bicycle producers to set up an advantageous supply chain and will employ artificial intelligence technology and big data to manage its business.

CCID Consulting's Men said that "the quality of products and services and user experience will decide which firm survives."

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