Bike rentals fast losing luster as many debt-ridden firms go under

In its heyday, the bike-sharing industry flooded Chinese streets with colorful bikes that were easy and inexpensive to rent.

Hailed as “Uber for bikes,” shared bikes represented a feasible solution to the “last mile” problem and helped ease traffic congestion.

Many startup companies hastily plunged into the market for a piece of pie. According to statistics released by the Ministry of Transport, there were about 70 bike-sharing companies with over 16 million bikes in China as of last July.

The market was estimated to be worth 10.28 billion yuan (US$1.5 billion). Mobike and Ofo, the two largest players, took 95 percent of the market share, with the rest competing for a paltry 5 percent.

Facing fierce competition, many bike-sharing startups vied aggressively for capital and kept pumping out bikes into the streets, regardless of the actual demand for their services.

Meanwhile, many users parked shared bikes at random, clogging sidewalks and blocking entrance to buildings and subway stations.

A vast number of shared bikes also end up in so-called “graveyards,” a sprawling final resting place for numerous discarded, broken or impounded bikes. Moreover, profits from the bike-share scheme pale in comparison to their high operational costs.

A ride within an hour costs only 1 yuan (15 US cents), and at the height of a subsidy war, it was often offered for free. But a shared bike, equipped with smart locks and GPS, costs 300 to 3000 yuan to build, as CCTV.com reported.

Since shared bikes are prone to loss and damage, more money is needed to repair and maintain them. When funding stopped, bubbles of the bike-sharing industry began to burst.

Since last year, more than six bike-sharing firms have gone bust after burning out the cash of investors. Apart from leaving a big pile of derelict bikes, the folded startups were left with huge outstanding debts to suppliers and complaints from enraged customers who couldn’t withdraw their deposits.

According to reports, e-bike firm Xiangqi was recently mired in a dispute over deposit refund. Many customers descended on the company’s headquarters in Shanghai to ask for their money back.

Despite claiming that operations went as usual and it was close to another funding round, the company quietly packed up and closed its doors, leaving users high and dry (“Bike-sharing firm taking people for a ride,” December 7, Shanghai Daily).

In less than two years, the once thriving bike-sharing industry is now in a limbo. This is another indicator of what might happen when an industry grows too big and too fast, confounding regulation. The bike-sharing fever needs to cool down a bit, and the authorities need to seriously consider how to regulate the industry.

According to an article published on Xinhua Daily Telegraph last November, experts believe that to promote the healthy growth of the bike-sharing market, governments, companies and customers need to join hands.

For its part, the government can issue regulations and step up supervision.

Companies should also step in, with measures like excluding unscrupulous customers from accessing the services. Alibaba’s Sesame Credit, the credit arm of Ant Financial, for example, frees users with high social credit scores from having to pay a deposit.

Customers also have a duty to park bikes properly in the designated areas. Offenders should be made to pay in the form of having their access to the service restricted or banned outright.

And companies need to come clean on the use of deposits. Last August, the Ministry of Transport, People’s Bank of China and other departments jointly issued guidelines that require companies to set up specific bank accounts for deposits and subject them to supervision by transport and financial departments.

But since we still see discontented customers lining up to get their deposits back, this means there is further room for multiple government agencies to cooperate to work out more detailed measures of supervision.