Bicycle-sharing failures underscore need for increased regulatory control in China

By Wang Jiamei Source:Global Times Published: 2017/11/26 22:18:39

As China's bicycle-sharing boom appears to have ground to a halt, it has become especially urgent for Chinese financial regulators to keep a closer eye on the sharing sector.

Guangzhou-based Mingbike laid off 99 percent of its staff amid a liquidity crunch, with their salaries months in arrears, domestic media reported on Thursday, citing an anonymous former employee.

Mingbike is not the only bike-sharing company that has hit the wall recently: The company is one of at least six bike-sharing operators to have failed so far this year.

Just like in the previous failures, Mingbike's consumers found they were having trouble getting deposit refunds, a development that underscores the loopholes in China's financial regulations and the need for strengthened supervision.

Shared bikes in China are certainly an effective solution for the "last-mile" problem for urban commuters, which is why these companies have attracted massive investment from venture capital firms that allowed them to expand rapidly. While it is unclear how bike-sharing operators can make a profit, it is clear that the sector has accumulated a sizeable deposit pool thanks to its large customer base. According to media reports, citing data from statistics released by the China Internet Network Information Center in August, total deposits may be as much as 10 billion yuan ($1.52 billion).
Without proper regulation and supervision, misuse of such a huge capital pool may generate great risks in the financial market. The money can be used in the stock market, the property sector or even shadow banking. It's this gigantic deposit pool that has warped the development of the bike-sharing sector.

According to a German magazine, considering that each bike is valued at about 250 euros ($296), a bike has to be used five times a day so that the operators can recoup their investment within a year. But the actual frequency of use is far below that level, and price wars put further pressure on operators' finances.

However, instead of pursuing profitability from the bike-sharing services, operators have simply dumped more bicycles on the streets, in an aim to increase their customer bases and take in more deposits. The absence of regulatory control in the bike-sharing sector has made the shared economy an excuse for fundraising.

Financial authorities need to strengthen control on the sector to protect consumers' interests as well as to prevent and address financial risks.

The author is a reporter with the Global Times.


blog comments powered by Disqus