Government Might Determine The Future Of The Chinese Online Bike Sharing Market

摘要: What’s the status quo of the Chinese online bike-sharing market? What’s the difference between traditional urban public bike renting system and the online bike-sharing system? What are their advantages, respectively? What’s the government’s attitude towards online bike-sharing? How will the Chinese online bike-sharing market gradually evolve? Which platforms are likely to survive the competition and stand out at last?

(Chinese Version)

The Chinese online bike-sharing market is evolving towards a quite interesting direction.

On March 16th, ofo announced that it had teamed up with Ant Financial and carried out a trial project, so that Shanghai users whose Sesame Credit is higher than 650 can rent ofo’s bikes without paying the RMB 99 deposit, making it the third online bike-sharing company that Ant Financial cooperated with (after QIBEI, YOUAN).

At present, online bike-sharing platforms have all been attempting to find a feasible solution to the credit problem through Ant Financial. In the past, most online bike-sharing platforms adopt a very controversial measure to manage credit risks: “deposit”, which held many people wondering: first of all, if users’ deposit is properly regulated? Secondly, how are users’ deposit used? Although most online bike-sharing platforms have denied using the deposit for other purposes, it is probable that deposit money is counted as income or used for other purposes amidst the fierce battle in the Chinese online bike-sharing market.

Although Ant Financial has teamed up with urban public bike-sharing platform Youan, their cooperation didn’t turn out to be as satisfactory as expected. However, by cooperating with rising Chinese online bike-sharing giants such as ofo, it has not only gained a high-frequency offline usage scenario to accumulate credit data, but also gone a step further in its goal towards “smart city”.

Yet, a respondent from Alipay told the media that Ant Financial’s cooperation with ofo was more like “dimensionality reduction”, and that Ant Financial would focus more on data and artificial intelligence than social networking and finance.

An internet entrepreneur shared his opinion with TMTpost, believing that most online bike-sharing platforms will gradually opt for the “credit unlock” mechanism and that run-on is to hit some platforms. In other words, real urban service provider such as Alipay and the government, will end up controlling the socialized operation of online bike-sharing platforms.

At this point, you might wonder if the government will play a big role on the Chinese online bike-sharing industry, and if Chinese online bike-sharing market will ultimately end up with the same fate as the online car-sharing market?

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Urban public bike renting system before the emerge of Mobike and ofo

Urban public bike renting system first emerged in the European country the Netherlands in 1995, when some anarchist organizations spontaneously painted bikes in white and parked unlocked bikes in public areas for free use. Within a few days, all the bikes were lost or damaged and the "white bike plan" ended up in complete failure.

Chinese cities including Beijing, Hangzhou and Wuhan learned from the Western society and established their own urban public bike renting systems in the beginning of the 21st century as a supplement to urban transportation system and a symbol of “green energy and environment protection”.

Typically, the municipal or city governments would purchase bikes and operate the public renting system. Beijing China City Yongan Eco-Technologies, a public bike system service provider with a registered capital of RMB50 million, is one of the biggest urban public bike manufacturers and operators in China.

“At present, we’ve signed up five-year shared-bike service purchasing contracts with 105 city governments. Our urban public bike system has covered 203 cities across China with nearly 700,000 bikes,” a respondent from the company told TMTpost in an interview.

Another feature of the operation model is: the government provides financial support, urban transportation system carries out the overall planning while enterprises like Yongan are responsible to develop the smart management system and provide operation and maintenance in the later stage.

Strictly speaking, online bike-sharing system is managed in the same way. For example, although online bike-sharing platforms don’t provide any cards, their “deposit and charge” system serve almost the same function. In addition, they also have to dispatch and distribute bikes, repair and manage bikes, carry out financial management service and provide several types of bikes. The only difference is that online bike-sharing platforms are often run completely based on market logic, while urban public bike system is led by city or municipal governments.

Nobody can deny that urban public bikes constitute an important part of public transportation. Since they are designed to bring convenience to public transportation, a typical issue that has to do with people’s livelihood. Although online bike-sharing platforms have a good starting point, government regulation is necessary to set out the industry standards, such as price, service quality, etc. to ensure that the civil behavior isn’t affected by business pressure.

Therefore, government regulations are quite necessary.

Compared to the market behaviors of Chinese online car-sharing platforms, online bike-sharing platforms’ behaviors are affected by both its public welfare nature and business nature. Therefore, they not only need huge-sum investment and support, but also have to face all kinds of social and political factors. At the same time, without government subsidy, these startups may find it difficult to achieve profitability and sustained development.

Can online bike-sharing platforms help the government solve the long-standing problems?

The good news is that venture investment firms are willing to take the place of government and support online bike-sharing platforms. Still, their ultimate goal is earn huge returns before the next round of capital entry.

Here comes the question: is online bike-sharing system better than traditional urban public bike renting system in solving some long-standing problems?

For sure, internet makes everything easier than before. Through online bike-sharing platforms change people’s lives and satisfy people’s needs for last-mile transportation. Therefore, online bike-sharing system significantly improves the usage rate of shared bikes than the traditional one.

Based on public data, since the usage rate of traditional urban public bikes is often low, their impact is limited. That’s why it’s hard for traditional urban public bike system to make profit. Lv Chengjiang, co-founder of QIBEI Bike, revealed to TMTpost that although the urban public bike system in Hangzhou was regarded as a model, daily exchange times was less than 3.75 in 2015, less than 5 in 2016.

However, according to Mobike and ofo’s data, the daily exchange times of their bikes can reach as high as 20, though we don’t know if this figure will gradually drop as the number of bikes increases. An investor in online bike-sharing companies once estimated that as long as an online bike-sharing company’ average daily bike exchange times reached over 4, it could recover the cost within 8 to 12 months.

Secondly, both traditional urban public bike system and online bike-sharing platforms have to face theft and damage risks. Tao Anping, CEO of Beijing China City Yongan Eco-Technologies, revealed to Tencent Technology that damage rate of its pile-free shared bikes was as high as 10 per cent.

Lv Chengjiang, co-founder of QIBEI Bike, also revealed to TMTpost that QIBEI’s bike theft and damage rate had reached around 5 to 10 per cent. This figure is even higher for bikes with mechanical locks. Although ofo once claimed that its theft and damage rate was less than 1 per cent, Tencent Technology once reported that report rate of ofo users was higher than that of Mobike users (39.1 per cent and 26.2 per cent, respectively).

At last, owing to problems such as theft and damage, huge operation cost, profitability capacity has always been a headache for companies run by market logic. An insider told TMTpost that the biggest beneficiaries of tradition urban public bike renting system are “advertisers”, since parking piles and shared bikes are naturally good places to post ads. Up till now, no online bike sharing platform has eyed on this area yet.

“Currently, daily bike renting business contributes to 95 per cent of most online bike-sharing platforms’ income, so any other source of income will be more like icing on the cake,” Lv told TMTpost, “if the original business model is not profitable, it will definitely not be a good business.”

Government interference will reveal the nature of the online bike-sharing business: it’s not an easy business

Potential government policies may reveal the nature of the bike-sharing business. After all, it’s not a good business, or an easy business.

Above all, competition in the Chinese online bike-sharing market has entered the stage of capital battle. Many analysts believe that 2017 will witness a couple M&A cases of online bike-sharing platforms. In fact, certain investors revealed that some entrepreneurs have already been looking for potential buyers.

Secondly, the need for share bikes is, after all, quite limited. An insider of traditional urban public bike renting system told TMTpost that only mega cities whose public transportation system (including subway and bus) has already been quite mature and whose need for last-mile transportation is obvious, such as Beijing, Shanghai and Guangzhou, can support the development of online bike-sharing platforms. Generally speaking, there are less than 100 cities across China that are fit for the development of shared bikes.

Thirdly, since online bike-sharing platforms lack proper experience in urban management and data operation, improper parking of shared bikes has become a headache for many cities, which has a huge negative impact on urban management and traffic. Therefore, government regulations are necessary to regulate urban environment. For example, Shanghai and Chengdu already came up with the idea of “settled parking pile”. After all, shared bikes are designed to facilitate urban transportation, ease traffic pressure, not the other way around.

“The government will only be stricter in regulating online bile-sharing platforms than online ride-sharing platforms,” the insider told TMTpost.

At last, government interference will certainly improve operation cost. Rumor has it that Shanghai municipal government has already been discussing the possibility of setting out industry standards and regulations, forcing online bike-sharing platforms to add GPS locks to shared bikes, discard shared-bikes after three years in service, return the deposit within a week, ensure the intact rate of shard bikes is no less than 95 per cent and set up a team of 50 maintenance personnel for every 10,000 shared bike, etc. All these standards and requirement will undoubtedly add the operation cost of shared bikes.

In addition, if the governments do require online bike-sharing platforms to specify parking piles to facilitate management, the flexibility of shared bikes will certainly drop. In this case, order volume might drop, while cost per bike may rise. Ultimately, the online bike-sharing business may no longer be a profitable business.

It is not difficult to draw the conclusion that only one to two platforms that can balance cost and return and continuously provide good user experience will survive the competition and laugh the last.

“The Chinese online bike-sharing market will develop amidst regulations and through regulations,” Shao Dan, an engineer at Shanghai Urban Construction Management Institute, told TMTpost.

Compared to rising stars such as Mobike and ofo, traditional urban public bike renting service providers have richer experience and are more familiar with market operation and governments’ attitudes. Nobody can tell for sure if they will catch up and surpass those rising stars. For example, although Shouqi Limousine & Chauffeur is a late entrant, it soon catches up with Didi. Yet, Guo Jingjing, head of 700bike’s supply chain division, told TMTpost that few traditional bike manufacturers knew how to apply their R&D expertise to the urban bike renting market.

It is probable that one to two bike-sharing platforms will survive the competition, stand the last and turn to the Public-Private Partnership (PPP) model.

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[The article is published and edited with authorization from the author @Han Pei, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.

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