Is a bubble emerging in China’s bike-sharing market?

By Ng Yau Man David Source:Global Times Published: 2017/5/9 20:18:39

Illustration: Peter C. Espina/GT


The first time my father saw a bicycle was when he was a teenage junior middle school student early last century in Guang'an city, Southwest China's Sichuan Province.It was the county magistrate who was riding the bike.

In the early 1950s, not many Chinese families could afford a bike, but subsequently they became more and more common in China, which became known as the "kingdom of bicycles."

After cars started to become more popular, less bikes were seen in the high streets of many Chinese cities.

But bikes returned to China en masse two years ago. This time, they came back with bike-sharing services. A client can rent a bike for around 1 yuan ($0.14) per hour through a mobile app.

Essentially, the bike-sharing business is a public good offered from the private sector, providing convenience to the public. This process from exclusivity to wide public access seems more positive than negative. It also indicates that industrial output has been raised so that an item that was costly in the past can now become common.

Thanks to technical innovations, today's mobile Web technology supports the bike-sharing services too. 

The number of customers in China's bike-sharing market totals 50-100 million. If each customer rides one of the bikes for 100 hours in one year, the bike-sharing companies can divvy up 5-10 billion yuan, less their maintenance and other operation expenses.

Investors have noticed, and related businesses are also booming. There are now around 30 bike-sharing companies operating all over the country; and around 6 billion yuan has been injected into the industry. Some analysts predict the country needs another 30 million bikes for hire to cater to the needs of the market.

Meanwhile, the price of one of the bikes is close to the gross rental income it would generate in 10 years or longer. During that period, the bikes can be damaged or stolen.

Hence, the profit margin in the market is razor-thin. And if the bike-sharing market does not consolidate, the related companies' profitability will not be encouraging.

The bike-sharing companies already own more than 1 million bikes in Beijing, Shanghai, Guangzhou and Shenzhen. And it has been reported that they will double the number of their bikes in the three cities other than Shenzhen. The companies are also eyeing the markets in other provincial capitals and middle-size cities.

To seize more market share, the companies have offered various promotions, such as discounts, gifts and free rental, even though this narrows their operating profit margins. The competition is fierce.

Once a bike-sharing company cuts prices, another company will do the same and the former company will then have to cut prices further, thus leading to a vicious spiral.

At this point, the question arises as to who is providing financing for these bike-sharing companies, which mostly are start-ups without any profitability record.

It has been revealed that the investors behind the companies include domestic Internet giants, venture capital funds and foreign investors, and more funds will probably be poured into the industry in the coming future.

This raises the question of whether the companies in the market are overvalued, and whether a bubble might be developing in China's bike-sharing sector.

It also shows that money supply in the country is somewhat loose. But the yield on investment will at some point have to comply with the law of diminishing returns.

The author is a commentator based in Hong Kong.

Posted in: INSIDER'S EYE

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